Using an RRSP as a Down Payment

Through the Home Buyer's Plan

Coming up with enough money for a down payment is often the only obstacle standing in the way for many Canadians who are ready to purchase a home of their own. The Federal Government has recognized this obstacle and has implemented the Home Buyer's Plan which allows qualified first-time home buyers to withdraw up to $20,000 from a Registered Retirement Savings Plan (without penalty) to use as a down payment on their new home.

To qualify for this plan, you must be considered a first-time home buyer. You are still considered a first-time home buyer even if you own a rental property, but you have not recently owned a property within the five years prior to applying for the Home Buyer's Plan.

If you do qualify for the Home Buyer's Plan, you must adhere to the following guidelines:

• You can only withdraw up to a maximum of $20,000 from your RRSP. If you are married or purchasing the property with another first-time home buyer, each individual can withdraw up to a maximum of $20,000 from an RRSP for a total of $40,000.
• Only the individual who owns the RRSP can withdraw the funds. You can make withdrawals from more than one RRSP as long as you are the owner. The combined withdrawal amount cannot exceed the $20,000 maximum per individual.
• You cannot withdraw funds from a locked-in RRSP.
• The funds must have been deposited into the RRSP for a minimum of 90 days prior to withdrawal.
• A signed agreement proving your intent to purchase is required. This means you must provide a purchase contract from a builder or seller showing you as the buyer.
• You must buy or build before October 1 of the following year after your withdrawal. For example, if you withdrew funds from your RRSP in June 2006, you must buy or build before October 1, 2007.
• The property being purchased must be occupied by the owner unless you are purchasing the property for someone who is related to you and who is disabled. The Home Buyer's Plan cannot be used to purchase investment or rental property.
• If you are disabled, you can participate in the Home Buyer's Plan to buy or build a more accessible home.
• You must begin to repay your RRSP two years after the funds are withdrawn. You have 15 years to repay the funds with at least 1/15 of the funds being repaid each year. If you fail to repay the minimum of 1/15 per year, that amount will be considered taxable income and you will have to pay the taxes.
• Your RRSP can be established with borrowed funds (which could result in a significant tax refund which could be used as the down payment).
• You can participate in the Home Buyer's Plan more than once, but only if your balance from the first withdrawal is fully repaid by the time you want to re-apply.