It is that time of year, when many Canadians rush to make their RRSP contributions prior to the deadline for the previous tax year. The RRSP home buyers' plan for first time home buyers is a great program to access money tax free money for downpayment purposes.Contributing to your RRSP prior to the deadline will achieve the following:
- Increase downpayment from RRSPs up to $25,000 per person
- Reduce taxable income and possibly generate a tax refund (free money) which can be used for downpayment or closing costs
RRSP Home Buyers' Plan Fine Print
You are right, there is fine print to be aware of:
- One must not have owned a home in the last 5 years. Verify with a qualified real estate lawyer your situation in the cases where one borrower has owned a home and other has not.
- Money deposited into RRSPs has to stay in the account for 90 days prior it is taken out
- Money taken out of the RRSPs has to be used for a home purchase and you have to have an agreement of purchase & sale in place (form T1036 needs to be completed at time of withdrawal for declaration purposes to CRA)
- The purchased home is your primary residence and not an investment property
- The monies have to be paid back over 15 years. If you don't pay it back it is considered taxable income. Should you payback your RRSP home buyers plan?
You can find more details on the RRSP home buyers on Canada Revenue Agency's website.