Make a Tax-Free Down Payment on Your First Home
If you are thinking about taking the first step into the exciting world of home ownership but are wondering how you will ever save enough money for that down payment, help is available.
The RRSP Home Buyer's Plan has been designed by the federal government to assist home buyers with the difficult task of saving for a home.
Here is how the plan works: if you are a first-time buyer and plan to purchase or build a home in Canada, you can withdraw up to $20,000 from your RRSP towards your down payment. If you have a spouse who is also eligible, you can each withdraw up to $20,000 toward the down payment, for a total of $40,000. Generally, you can participate in the RRSP Home Buyer's Plan only once in your lifetime.
The best part is that no income tax will be deducted from these funds as long as they were deposited at least 90 days prior to your withdrawal, and you repay them to your choice of RRSP over a period of not more than 15 years. Repayment must begin two years after your RRSP withdrawal, with scheduled annual payments on or before December 31 of each year.
Each year you have to repay 1/15 of the total amount you withdrew until the full amount is repaid to your RRSP. You will receive an annual repayment statement from the government that will tell you the amounts you have repaid and the amount you will have to repay the next year.
It is important to note that you do not receive a second tax break when you make an annual repayment to your RRSP. You must inform your RRSP insurer that it is a repayment and not a regular contribution and complete an RRSP repayment form, available any Revenue Canada district office.
If you decide to pay less than your scheduled annual payments, the amount that you don't repay must be reported as income on your tax return for that year and you will be taxed on that amount.
No matter what type of home you wish to buy - whether it is existing or newly built, detached for semi-detached, a townhouse, condominium, mobile home or apartment - you can take advantage of the RRSP Home Buyer's Plan. Your home must, however, meet a few straightforward criteria: it must be located in Canada, acquired not more than 30 days before receiving the withdrawal under the RRSP Home Buyer's Plan and intended as your principal place of residence within one year after buying or building it.
Talk to a real estate professional to learn more about the RRSP Home Buyer's Plan. A REALTOR® will ensure that you maximize the plan's benefits and help you take that step into home ownership with confidence.
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