Just what is this RRSP Home Buyers’ Plan? – Part 2 of 3

| June 5, 2013 | 0 Comments

Welcome to the second installment of the RRSP Home Buyers’ Plan (HBP), to read the first part you can click here. In the first part  I gave a brief overview of how the plan worked and described who is considered a first time home buyer. In the second part I will cover what homes are qualified for the plan, the timing and limits of your RRSP withdrawals with the HBP.

Qualifying Home

To withdraw funds from your RRSP under the HBP, you must first have entered into a written agreement to buy or build a qualifying home.

A qualifying home is a housing unit located in Canada, including existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, co-operative housing units, and apartments in duplexes, triplexes, and even apartment buildings all qualify (ITA 146.01(1), qualifying home).

Furthermore, when you withdraw funds from your RRSP under the HBP, you must intend to occupy the qualifying home as your principal place of residence, no later than one year after buying or building it (ITA 146.01(2)). Once you occupy the home, there is no minimum period of time that you have to live there.

Timing of Withdrawals

You cannot withdraw an amount from your RRSP under the HBP if you or your spouse already owned the qualifying home more than 30 days before the date of the withdrawal.

Example Diego bought a qualifying home with a closing date of March 31st of this year. Diego must make his final withdrawal under the HBP no later than 30 days after the closing date, or April 30th in this case. If he makes a withdrawal on May 5th, it will not be considered an eligible withdrawal and he must include the withdrawal amount in his taxable income for this year.

Furthermore you have to receive all of the withdrawals from all of your RRSPs within a 13-month period that begins with the January 1st of the year in which you make your first withdrawal.

Example On July 22nd, Dora made her first withdrawal of $11,000 from her RRSP under the HBP. This means that Dora had to make all of her HBP withdrawals by January 31st of next year.

If you receive a withdrawal of funds in one year and another after January of the following year, the amount received after January will not be an eligible withdrawal under the HBP and you will have to include it in your income for that year.

Example Assume in March of next year, Dora withdraws an additional $4,000 to pay for expenses that she had not anticipated. Even though this withdrawal will take place less than 12 months after her first withdrawal (i.e. July 22nd of this year), it is not an eligible withdrawal because Dora withdrew the $4,000 after January 31st. Dora will have to include $4,000 in her income for next year.

Finally, you have to buy or build the qualifying home before October 1st of the year after the year of the withdrawal. If you are building a qualifying home, it is considered to have been built on the date it becomes habitable.

If you do not buy or build the qualifying home before October 1st of the year after the year of the withdrawal, you can either cancel your participation in the HBP, or you can buy or build a replacement property, before the deadline.

You can only withdraw funds from your RRSP under the HBP without affecting your RRSP deduction limit if the funds were contributed to the RRSP at least 90 days before the withdrawal. The normal RRSP contribution limits apply for the rest of the year after the withdrawal.

Withdrawal Limits

In previous years, HBP withdrawals were limited to $20,000. However, effective January 27, 2009, the HBP withdrawal limit was increased to $25,000. You can make more than one withdrawal, as long as the total of all withdrawals does not exceed $25,000. If you buy the qualifying home together with your spouse, common-law partner, or other individuals, each individual can withdraw up to $25,000 under the program.

If you attempt to withdraw more than $25,000 from your RRSP, you have to include the excess amount as income for the year that you receive it. In addition, the RRSP administrator has to withhold tax at source on the excess amount before it can be paid out to the annuitant.

Example From February through June of this year, Boots made a series of withdrawals from her RRSP under the HBP totaling $17,500. In August of this year, she requested and received a $10,000 HBP withdrawal from another RRSP.

Since she has exceeded the HBP withdrawal limit, Boots will have to include the excess amount of $2,500, calculated as [the greater of $0 and (cumulative HBP withdrawals – HBP withdrawal limit)] or [the greater of $0 and (($17,500 + $10,000) – $25,000)] in her income for this year.

With the RRSP Home Buyer’s Plan it is important to plan out your withdrawals and mark the important dates on a calendar to avoid missing any deadlines. In the final installment I will cover repayment of the RRSP Home Buyers’ Plan, First Time Home Buyers Tax Credit and canceling the Home Buyers’ Plan. In the meantime good luck in finding your dream home and if you have any questions please send me an e-mail.

If you would like to learn more about the Home Buyer’s Plan and can’t wait for the next blog post or would like to learn how to pay off your mortgage faster, call me at 613.286.6841 or e-mail me info@andrewwbradley.ca.

The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice (preferably me) before making any decision in relation to your particular requirements or circumstances.

 

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Category: Finance, Living

About the Author ()

Andrew is a licensed Life Insurance Broker and Registered Retirement Consultant-RRC® helping Ottawa families since 2011. Awards : 2017 ThreeBestRated.ca -Handpicked Top 3 Financial Services in Ottawa, 2017 Faces Magazine Awards – Ottawa’s Favorite Financial Advisor, 2017 Feedspot Top 40 Life Insurance Blogs on the web and 2016 Insurance Business Magazine – Life & Health Advisor of the Year Finalist.

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