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

RRSPs are a great vehicle for reducing current year’s income tax, while saving for retirement. RRSP are registered retirement savings plans, which enable Canadians to access tax benefits for joining in the plan. RRSP contributions made by a tax payer decreases their current year taxable income and the savings are not taxed till the time of retirement, when the funds are withdrawn.

In some circumstance RRSP owners find themselves in need to access their RRSP savings prior to retirement.

A common life event that brings about this need is when an individual is ready to purchase or build a home. CRA provides the opportunity for tax payers to access their RRSP savings under the home buyer 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of withdrawal, the funds in the RRSP must have been in the fund for more than 90 days and the total amount of monies withdrawn must be done so in the same calendar year.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The RRSP funds withdrawn under the home buyer plan can only be used for the purchase or build of a home for the RRSP owner and not for any other individual, related or not to the RRSP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 withdraw happens after the 30 day period, the conditions will be seen as not meet under the home buyer plan and the withdrawal will be considered 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 This can be withdraw from ne plan or numerous, as long at the home buyer is the owner of the RRSPs which are withdrawn.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 buyer plan. The funds can be withdrawn immediately after successful approval from the CRA.