How to Use Your RRSP for a Down Payment

The Home Buyer’s Plan (HBP) allows eligible individuals to use their Registered Retirement Savings Plan (RRSP) savings for a home down payment. This program assists first-time home buyers in Canada, permitting tax-free RRSP withdrawals if funds are repaid within a specified timeframe. The HBP makes homeownership more accessible by leveraging existing retirement savings without immediate tax penalties.

Eligibility and Conditions

To participate in the Home Buyer’s Plan, individuals must meet specific criteria, including being a “first-time home buyer” and a Canadian resident. A first-time home buyer is generally defined as someone who has not owned and occupied a home as their principal residence in the current calendar year before the withdrawal or in the preceding four calendar years. The home itself must be a qualifying property in Canada, intended to be the principal residence for the participant within one year of purchase or construction.

Participants must also have a written agreement to buy or build a qualifying home. Funds must have been held in the RRSP for at least 90 days prior to withdrawal. An individual can withdraw up to $60,000 from their RRSP under the HBP. If both spouses or common-law partners qualify, they can each withdraw up to $60,000, allowing for a combined total of $120,000.

Withdrawing from Your RRSP

The process for withdrawing funds from an RRSP under the Home Buyer’s Plan involves a specific form and interaction with your financial institution. To initiate a withdrawal, you must complete Form T1036, titled “Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP.” This form must be completed for each withdrawal made under the HBP.

After filling out Area 1 of Form T1036 with your personal details, you must submit it to your RRSP issuer, such as your bank or financial institution. The RRSP issuer then completes Area 2 of the form and processes the withdrawal. Multiple withdrawals are permitted within the same calendar year as the first withdrawal, and potentially in January of the following calendar year, not exceeding the $60,000 individual limit. Funds withdrawn within the HBP limit are not subject to tax withholding at the time of withdrawal, unless the amount exceeds the $60,000 threshold, in which case the excess portion is considered taxable income.

Repaying Your HBP Loan

Repaying the funds withdrawn through the Home Buyer’s Plan is necessary to avoid tax implications. The repayment period is 15 years, with annual repayments required back into your RRSP. Currently, a temporary extension allows participants up to five years before they must begin their repayments, rather than the usual two years.

The minimum annual repayment amount is calculated by dividing the total withdrawn amount by 15. For example, if you withdrew the maximum $60,000, your annual repayment would be $4,000. Repayments are made by contributing to your RRSP and then designating these contributions as HBP repayments on Schedule 7 of your tax return. If the minimum annual repayment is not made, the shortfall is added to your taxable income for that year. Repayments do not generate new RRSP contribution room and cannot be deducted from your taxable income.