Being a first-time homebuyer isn’t easy in today’s real estate market. Many feel the pinch of the down payment and qualifying terms more than those who have already owned a home. Luckily for all first-time homebuyers, there is a federal government program called the Home Buyer’s Plan that can help free up funds to finance the down payment. The plan allows you to use your RRSP savings to help you get into a home. To find out more, read on as we outline everything you need to know about the Home Buyer’s Plan.
Under the Home Buyer’s Plan, you are eligible to withdraw up to $25,000 of your RRSP when you qualify. To be eligible, you must be a Canadian resident at the time of the withdrawal, have a written agreement to buy or build a qualifying home, and not have purchased a home in the last four years. Plus, the first year that you withdraw from your RRSP, you must intend to live in the home as your primary residence.
On the other hand, if you or your partner has owned the home for more than 30 days prior to the RRSP withdrawal, or you have a remaining balance from a previous Home Buyer’s Plan agreement, you will not qualify. There are also certain types of RRSPs that may not be eligible such as locked-in RRSPs. To find out if you can meet the qualifications you should talk to your financial institution or to a professional mortgage broker.
Starting the Process
Once you have met the necessary qualifications, you can start the process by completing a Canada Revenue Agency T1036 form. Once you have filled in all the applicable sections, you will need to bring the form to your RRSP holder who will finish the process and release the funds to you, tax free.
Filing with Your Taxes
Each year during tax time, you will receive a tax slip outlining the amount you have withdrawn. You are required to file this with your income tax return and complete the relevant sections. We recommend you talk to a financial advisor or accountant to ensure you process the information correctly before proceeding.
Repayment for the Home Buyer’s Plan is easy. Starting two years after the amount has been withdrawn, you will have 15 years to repay back your RRSP without incurring any taxes. The payment schedule will be based on a yearly repayment plan set out by the Canada Revenue Agency. If you are unable to pay the amount required in any given year, the amount will be added to your income as taxable income and you will be required to pay the taxes. Just note that any repayment amount you make will not affect your yearly contribution limit, You could contribute towards your RRSP for the year as per normal.
The Home Buyer’s Plan can help all new, first-time home buyers get into the market and into a home more easily. If you’re ready to purchase a new home, talk to your mortgage broker with The Financial Forum for more information about the services available to you and whether you qualify.