Realty Executives of Simcoe Inc. Brokerage
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As you probably guessed, The Home Buyers Plan (HBP) only applies to first-time homebuyers, but that doesn't mean that you can't ever use it if you or your spouse has owned a home. If you have already bought one within the last four years, you do not qualify for the benefits, but if you lived in a house for 5 or more years ago, sold it and have been renting ever since, you do! View more information on HBP here
In order to continue with HBP, you need to have a Registered Retirement Savings Plan (RRSP). An RRSP is a provision by the Canadian Government that encourages Canadians up to the age of 71 to save money for retirement. RRSPs are a fantastick way to save for retirement as they offer tax benefits. RRSP's allows you to make contributions and withdrawls. Under the Home Buyers' Plan, the rules are somewhat relaxed and you can withdraw a certain amount of money without incurring tax as long as it's repaid in time.
When the time comes to request an HBP withdrawl, you need to confirm that the amount you are wishing to withdraw has been present in your RRSP account for at least 90 days. If you do, your withdrawl would not qualify for an RRSP deduction.
The HBP will allow a first-time home buyer to withdraw up to $25,000 once in a lifetime. This is done without a tax penalty from your RRSP. It is tax-free, but the HBP does insist that you use the entire amount to pay for any expenses related to your home purchase (down payment, closing costs, renovations, etc).
HINT: Are you married or in a common-law relationship? Is your partner also a first-time home buyer? You can double your HBP. Your partner can withdraw from their RRSP $25,000; so now you have up to $50,000 of tax-free funds available to put towards your home purchase! YAY!
Before you begin the process to withdraw funds from your RRSP account, you have to get a written agreement to buy/build a home with the condition that your final withdrawl under the HBP can be no later than 30 days after the closing date. Withdrawls after that period would be included in your income tax and therefore be subject to tax.
Once you are a confirmed Canadian resident or citizen, a first-time home buyer, have an RRSP account and a written agreement... you need to fill out Form T1036 - Home Buyers' Plan Request to Withdraw Funds from an RRSP as per the steps outlined by the government. Your RRSP issuer will then send you Form T4RSP - Statement of RRSP Income, showing you the withdraw amount unde ther the HBP. You will then attach this slip to your income tax return.
NOTE: You must fill out a new T1036 for each withdrawl you make.
In order for your RRSP withdrawl to succeed, you must confirm your intent to move into your home as your principal place of residence withone 1 year after building or buyer it. Failing to do so within the time limit, may result in financial penalties.
The money you have withdrawn from your RRSP account is in fact your own, however, it is actually a loan that you have taken against your retirement fund and must be paid back
The Government of Canada has outlined the payback procedure as such: payback begins after a two-year grace period with annual installments that can stretch up to a maximum of 15 years. You can also pay back the entire sum at once or in larger sums, as long as you don’t miss payments. If you default on your repayment, then the CRA will treat your RRSP withdrawal as an income, and will tax you for it.
Be prepared to show you have complied with various HBP requirements. This includes: proof of purchase and closing date, withdrawn your funds from your RRSP within 30 days of the closing date etc.
**information provided by Realtor.ca**