An RRSP, or Registered Retirement Savings Plan, is a savings account in Canada designed specifically for retirement. When you put money into an RRSP, you don’t pay income tax on that money for the year you earn it, which directly lowers your annual taxes. Every year you also make a return, which is added to your savings. However, when you eventually withdraw the money during retirement, you will pay taxes on it, typically at a lower rate because your income is usually lower than during your working years.
The amount you contribute every year depends on your annual income. For the 2023 tax year, you can contribute up to 18% of your earned income from the previous year, with a maximum limit of $29,210. The Canadian government introduced the RRSP Home Buyers’ Plan in 1992, which lets you use up to $35,000 from your RRSP towards buying a home.
Do I have to return any funds I use?
Yes, if you use the RRSP Home Buyers’ Plan (HBP), you must repay the funds you withdrew from your RRSP. The repayment period starts the second year after the year you made your withdrawal. You have up to 15 years to repay the amount you withdrew under the HBP to your RRSP.
Each year, you must repay at least 1/15th of the total amount you withdrew until the full amount is repaid. If you do not repay the annual amount due, it will be added to your income for that year, and you will have to pay income tax on it.
The Canada Revenue Agency (CRA) tracks your repayments and will send you a Home Buyers’ Plan statement of account each year with your Notice of Assessment, which will show your total HBP balance, the amount you have repaid to date, and the amount you need to repay the next year.
How do I qualify for the RRSP Home Buyer’s Plan?
To participate in the RRSP Home Buyers’ Plan (HBP), follow these steps:
- First-Time Homebuyer: This means you, and your spouse, common-law partner, or anyone you’re buying the property with should not have owned a home that was occupied as a principal place of residence within the four years before the date of your HBP withdrawal.
- RRSP Holder: Funds you plan to use must have been in the RRSP for at least 90 days before withdrawal.
- Purchase or Building a Qualifying Home: You must have a written agreement to buy or build a qualifying home for yourself or for a related person with a disability.
- Principal Residence: You must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it. If you are buying or building a home for a related person with a disability, that person must intend to occupy the home as their principal place of residence.
- Repayment Ability: You must have the intention and ability to repay the amount withdrawn from your RRSP within 15 years, starting the second year after the year in which you made the withdrawal.
- Resident in Canada: At the time of the withdrawal, you must be a resident of Canada.
- Withdrawal Limit: You can withdraw up to $35,000 from your RRSPs under the HBP in one calendar year. If your common law partner or spouse has an RRSP account, then they can withdraw up to $35,000 as well, so your total down payment contribution is $70,000.
- Completion of HBP Form: You need to complete Form T1036 for each RRSP account you want to withdraw funds from under the HBP.
- No Outstanding HBP Balance: You cannot participate in the HBP if you already have an outstanding HBP balance that has not been repaid.
Can I purchase pre-construction using RRSP Home Buyer’s Plan?
Yes, you can purchase a pre-construction unit using RRSP Home Buyer’s Plan as long as you meet all conditions that we mentioned in the previous section. But there is a catch. You can withdraw only if you move into the home before October 1st of the year after your first year of withdrawal.
To help you understand it better, let’s say you booked a pre-construction condo in January 2024 and it is expected to complete in August 2025. This is an eligible scenario for withdrawal. If the move-in was December 2025, then you aren’t eligible for withdrawal. Since pre-construction deposits are paid in intervals, you can use your RRSP money to pay a deposit installation towards the end of closing.