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How to access RRSP funds to Buy or Build a new Home

    RRSPs are a great vehicle for reducing a current year’s income tax, while saving for retirement. RRSPs are registered retirement savings plans, which enable Canadians to access tax benefits for joining in the plan. RRSP contributions made by a tax payer decrease the current year taxable income and the savings are not taxed till withdrawn in retirement, presumably, when the retiree’s income is less. RRSP owners may access their RRSP savings prior to retirement to purchase or build a home under Home Buyer’s Plan.

    The Homebuyers Plan

    The homebuyer plan allows an individual to withdraw money from their RRSP to buy or build a home.

    To be eligible for the Home Buyer Plan a tax payer must own an RRSP, be a Canadian resident at the time of withdrawal, the funds in the RRSP must have been in the fund for more than 90 days and the total amount of monies withdrawn must be done so in the same calendar year. The RRSP owner must also be a first time home buyer. It should be noted, although it is called a home buyer plan it does allow for the purchase of a home or the purchase of materials to build a home.

    The RRSP funds withdrawn under the home buyer plan can only be used for the purchase or build of a home for the RRSP owner and not for any other individual, related or not to the RRSP owner. The only exception to this rule is if the RRSP owner is buying or building a home for a person related to them with a disability. Additionally, the withdrawal should be made prior to the individual moving into the property and no later than 30 days after the individual has moved into the new home. If the withdrawal happens after the 30 day period, the withdrawal will be deemed unacceptable and will be met with penalties and accompanying fees from the CRA.

    The home buyer plan allows for a tax payer to withdraw up to $25,000. This can be withdraw from one plan or numerous, as long at the home buyer is the owner of the RRSP monies which are withdrawn. The plan has an age limit of 71; once an individual has reached 71, they are no longer able to take advantage of the home buyer plan.

    The responsibility is on the individual withdrawing the funds to ensure that they are in full compliance with all conditions and regulations of the home buyer plan. If at any time through the process, the individual does not meet one or any of the conditions required, the withdrawal will be disqualified under the home buyer plan. The funds withdrawn will then be considered taxable income in the year in which they are received and taxed accordingly. Additionally,penalties and fees may be placed on the tax payer. Continuous communication with the CRA and personal record keeping will help ensure full compliance.

    In order to take advantage of this program the tax payer must fill out a T1036 form in order to request funds.  If a tax payer has a locked RRSP plan, the funds are generally not available for withdrawal, even under the home buyers plan. The funds can be withdrawn immediately after successful approval from the CRA.

    Christopher - BSc, MBA

    Christopher - BSc, MBA

    With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.

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