Most withdrawals from your registered retirement savings account (“RRSP”) are included in your income. However, there are some exceptions. One of the main exceptions relates to the RRSP Home Buyers’ Plan.
Under this plan, you can withdraw up to $25,000 from your RRSP for the purpose of purchasing a home on a tax-free basis. If you are married or in a common-law partnership, your spouse or partner can also withdraw $25,000 from their RRSP tax-free. So the two of you can withdraw a total of $50,000.
There are some conditions that have to be met. First, you can participate in the plan only if you and your spouse (or partner) did not own an owner-occupied home in the period going back to the beginning of the 4th year before the withdrawal and ending 31 days before the withdrawal. So, for example, if you want to withdraw an amount on August 31, 2017, neither you nor your spouse must have owned a home from the beginning of 2013 to the end of July 2017. However, you could acquire your home within the 30 days before August 31, 2017 and still make the withdrawal.
If you are disabled (qualifying for the Disability Tax Credit (DTC)) or are acquiring the home for a disabled relative (again, qualifying for the DTC), the above 4-year ownership period limit does not apply. In other words, you can still withdraw under the plan even if you or the disabled relative owned a home in the 4-year period before the year of withdrawal. However, in such case the new home must be one that is more accessible by the disabled person or in which that person is more mobile or functional, or it must provide an environment better suited to the personal needs and care of the disabled person.
In terms of when you must acquire the home, you must acquire it in the period beginning 30 days before the withdrawal and ending on September 30 of the year following the withdrawal. Therefore, in the above example, you could acquire the home from August 1, 2017 through the end of September 2018. You must inhabit the house as your principal residence within one year after the acquisition.
In order to withdraw the funds tax-free, you must provide your RRSP issuer with the Form T1036 “Home Buyers’ Plan (HBP) – Request to Withdraw Funds from an RRSP”, which sets out the location of the home and that you are either residing in the home or intend to reside in it within one year of acquiring the home. Also, you must have already entered into an agreement to purchase the home or to have it built.
The withdrawal from your RRSP under the Home Buyers’ Plan is essentially an interest-free loan from the RRSP to you. You must repay the withdrawal in a maximum of 15 annual instalments. The first payment is due in the second taxation year following the withdrawal, and it can be made in that taxation year or within 60 days after that year.
To the extent you do not fully repay the required instalment amount in a year, the amount not repaid is included in your income.