First Time Home Buyer
You are considered a first time home buyer if you have not owned a home while you occupied it as your principal place of residence for five years. At any time in the fifth calendar year since you last owned a home you can qualify.
Federal Home Buyers Plan
The Federal Home Buyers Plan allows first time home buyers to withdraw up to $20,000 from their RRSP for the purpose of buying or building a qualifying home. The primary benefits are that the RRSP issuer will not withhold tax on the amount nor will you have to claim the amount as income. The amount must be repaid to the RRSP within 15 years with a minimum annual payment of 1/15th of the amount withdrawn. If a repayment is not made for a given year the minimum repayment is included as taxable income for that year.
To participate you have to withdraw the amount from your RRSP using form T1036 Applying To Withdraw An Amount Under The Home Buyers Plan. Give the completed form to the RRSP issuer along with the certification that you meet or intend to meet certain conditions as follows:
- You have to make your withdrawal request in the same year you wish to participate in the Home Buyers Plan
- You cannot have previously participated in the plan in previous years
- You have to be a resident of Canada
- You have to enter into a written agreement to buy or build a qualifying home
- You can withdraw a total of $20,000. Multiple withdrawals are allowed. Each of you and your Spouse can participate in the Plan and withdraw $20,000 from your own RRSPs
- You have to be considered a First Time Home Buyer
A qualifying home is a housing unit located in Canada. Existing homes and homes under construction are both qualifying homes and can be either:
- Single Detached Family Homes
- Semi Detached
- Town Home
- Mobile Home
- Condominium Unit
- Apartment in a Duplex, Triplex, Fourplex or apartment building.
- A Share in a Cooperative Housing Corporation, provided the share entitles you to posses, and gives an equity stake in, a housing unit.
To accumulate $20,000 in a non RRSP savings plan, assuming an 8% return and a marginal tax rate of 35%, you would have to invest $3,605 each year for the next five years. This would mean earning $5,546 in gross income each year in order to net out this $3,600 in after tax savings.
Rather than spending this $5,546 in gross income each year on a non RRSP investment, you could invest this same amount into your RRSP. With yearly RRSP contributions of $5,546, you will accumulate about $32,536 in five years. You will also receive tax savings each year in the amount of $1,941. Another way to look at it is that you could accumulate the required $20,000 down payment in about 3 1/3 years by choosing the RRSP savings approach. IT ALWAYS MAKES SENSE to save through an RRSP, whether the savings will be for a house or retirement.
Canadians will be eligible to make tax-free withdrawals from their RRSPs to support lifelong learning. Individuals will be able to withdraw tax free up to $10,000 per year from their RRSPs, with a maximum of $20,000 over a four-year period. To preserve retirement incomes, these withdrawals will be repayable over 10 years.
Pay back the minimum 1/15th required each year if you borrow through the home buyers plan. Repayments do not trigger another tax savings. All savings above the minimum 1/15th repayment should be designated ‘contributions ‘, and invested into your RRSP. You’ll receive the tax savings on these amounts each year.
Always invest as much as you can in your RRSP, even if you have to borrow, but be sure you can afford to carry the loan.
Withdraw the money from your RRSP only if you have no other source of non RRSP savings.
If you’re a first time home buyer and would like more information please complete the form below.