Area of Law: Tax Law
Answer # 181
Borrowing from an RRSP to buy a home or go to schoolRegion: Ontario Answer # 181
Home Buyers’ Plan
The Home Buyers’ Plan (HBP) allows you to borrow money from your RRSP to buy or build a home for yourself or for a related person with a disability. There are a number of conditions that apply to the Plan. The following outlines the main conditions.
1. Home Buyers’ Plan balance
First, if you have previously participated in the Home Buyers’ Plan, your repayment balance on January 1 of the year of the withdrawal must be zero. You may then be able to participate again in the Plan if you meet all the other conditions, including this one. Your balance is zero when the total of your designated repayments and the amounts included in your income (because they were not repaid to your RRSPs) in previous years equal the total eligible amount.
2. Maximum withdrawal of $35,000
Second, the maximum withdrawal you can make from your RRSP is $35,000. If you have money in more than one RRSP, you can withdraw money from all of them, up to the limit of $35,000 in total. If you have a spouse or common-law partner who is also eligible for the Home Buyers’ Plan, you can each withdraw $35,000 from your RRSP, for a total of $70,000. The money you withdraw must have been in your RRSP for at least 90 days.
3. Agreement to buy or build a home
Third, you must enter into an agreement to buy or build a home before you can sign up for the Home Buyers’ Plan. Both new and existing homes that are located in Canada are eligible for the Plan. The home can be a detached or semi-detached home, a townhouse, a condominium, a mobile home, shares in a cooperative housing corporation, or an apartment in a duplex, triplex, fourplex, or apartment building.
4. Principal place of residence
Fourth, you are only eligible if you intend to occupy the home as your principal place of residence no later than one year after buying or building it. Once you are living in the home, there is no minimum period that you have to live there.
5. Time limit for owning the home
Fifth, neither you nor your spouse or common-law partner can own the qualifying home for more than 30 days before making the RRSP withdrawal.
6. Specify that the withdrawal is to buy a home
Sixth, when you withdraw the money from your RRSP, you must specify that you are making the withdrawal to buy a home. You must fill out a Canada Revenue Agency form called Form T1036 HBP—Request to Withdraw Funds from an RRSP. This form is available from a Canada Revenue Agency office.
7. Must be a first-time home buyer
Lastly, before you can withdraw funds from your RRSPs to buy or build a qualifying home, you must meet the first-time home buyers’ condition. You are considered a first-time home buyer if, during Canada Revenue Agency’s preceding four-year period, neither you nor your spouse or common-law partner owned and lived in another home.
8. Person with a disability
If you are a person with a disability, or you are acquiring a home for a relative with a disability or helping a disabled relative acquire a home, you may not have to meet the first-time home buyers’ condition. Visit the Canada Revenue Agency website for more information regarding persons with a disability and the conditions for the Home Buyers’ Plan.
9. Repay the money to your RRSP
You must repay the money you withdraw from your RRSP over a period of not more than 15 years. You will not have to pay income tax on the money you withdraw as long as you replace it within 15 years. Because you already received the tax benefit for the money you withdraw, your replacement payments must be made with your after-tax income. The repayment period begins two years after the year in which the withdrawal is made.
For more detailed information on participating in the Home Buyers’ Plan, or if you are not sure whether you are eligible for the Plan, you should talk to a realtor or a financial advisor.
Lifelong Learning Plan
The Lifelong Learning Plan (LLP) allows you to withdraw money from your RRSP to pay for full-time training or education for either you, your spouse, or your common-law partner. The LLP does not apply to the training or education of children.
1. Qualifying for the LLP
In order to qualify for the LLP, the following conditions must be met:
- the individual must own an RRSP (or be the spouse or common-law partner of someone who owns an RRSP)
- the owner of the RRSP must be a Canadian resident
- the student must enrol in a full-time qualifying educational program at a designated educational institution (part-time enrolment is available for students with disabilities)
- if the student has not yet enrolled in the study program, he or she must have received a written offer to enrol before March of the year after the funds were withdrawn from the RRSP
- the student must not have already completed his or her study program when applying for the LLP
- the study program must be completed before the student reaches the age of 71
If you meet the qualifications to participate in the LLP, you are entitled to:
- participate in the LLP as many times as you want, provided that you bring your LLP balance to zero first
- participate in the LLP at the same time as your spouse, or common-law partner
- participate in the LLP and the Home Buyer’s Plan at the same time
2. Maximum withdrawal of $20,000
The maximum withdrawal you can make from your RRSP for the LLP is a total of $20,000, and not more than $10,000 per calendar year. If you have money in more than one RRSP, you can withdraw money from all of them, up to the total and yearly limits. If you withdraw more than $10,000 in a calendar year, the issuer will apply a withholding tax. If you withdraw more than the LLP total limit of $20,000, the excess will be included as income in the year that you withdrew it.
If you have a spouse or common-law partner who is also eligible for the LLP, you can each withdraw a maximum of $10,000 in a calendar year and a total of $20,000 from your respective RRSPs, for a combined total of $40,000. If you repay the money to your RRSP and bring your LLP balance to zero, you can participate in an LLP again, and you will once again be able to withdraw a total of $20,000 for the new LLP. The money you withdraw must have been in your RRSP for at least 90 days.
3. Repay the money to your RRSP
You must repay the money you withdraw from your RRSP for an LLP over a period of not more than 10 years. You will not have to pay income tax on the money you withdraw as long as you replace it within 10 years. Because you already received the tax benefit for the money you withdraw, your replacement payments must be made with your after-tax income. The repayment period begins no later than the fifth year after your first LLP withdrawal. In most cases, however, you will have to start repaying before that time.
For information about funding your child’s education, refer to Registered Education Savings Plans.
For more information about the Lifelong Learning Program, or for general information, visit Canada Revenue Agency.
For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact Tax Chambers LLP
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