RRSP Home Buyers' Plan

Under the Canada Revenue Agency's Home Buyers’ Plan, first-time homebuyers can "borrow" money from their RRSPs to a maximum of $35,000 per individual, to pay for a new home. You may be eligible for this plan if you did not occupy a home that you or your current spouse or common-law partner owned in the four-year period before you withdraw the funds, or if you are disabled and the new home provides better access for you.

Generally speaking, when money is removed from an RRSP, it becomes taxable in the year it is withdrawn. Under the Home Buyers’ Plan, the money is "borrowed" from the RRSP and is not taxable. The repayment schedule sets out the minimum annual amounts to be repaid over the next fifteen years (beginning the second year after the withdrawal). If you are unable or choose not to repay the minimum amount in a given year, the shortfall becomes taxable for that year.

The Home Buyers’ Plan can provide a source for a down payment if no other cash is available. The higher the down payment, the lower CMHC insurance costs, so at first glance, this plan looks ideal. However, there are three costs to consider:

  1. Lost tax-deferred investment growth in your RRSP: If you take the money out, it’s no longer able to grow. Use your investment time horizon and asset mix to estimate how much foregone investment return could be lost.
  2. Cash flow: In addition to your new mortgage, can you make the RRSP repayments, which will not give you a tax refund?
  3. A possible inability to contribute to your RRSP for that year, which costs lost tax savings and investment growth.

Since there are so many variables involved, the Home Buyers’ Plan may be good for some and not for others. Before you take money from your RRSP under the Home Buyers’ Plan, consult with a financial planner to make sure it’s your best option.