First time home buyer? How to make the most out of your Home Buyers Plan Withdrawal

Author Rishi Published February 2, 2017

This strategy applies to you if..

  • You are planning to buy a home in more than 3 months from now.
  • Have RRSP contribution room – the more the better!

The Home Buyers Plan (HBP) allows a qualified first time buyer to withdraw up to $25,000 from their RRSP, tax-free.  This amount is to be paid back evenly over 15 years.

The Strategy…

If you are buying a home in more than 3 months’ time, and you have the available RRSP room, you can contribute up to $25,000 into your RRSP and then 3 months later withdraw the funds under the Home Buyers Plan.  By having the funds in your RRSP for at least 3 months, it allows you to still claim the tax deduction when filing your income tax return.

 

Example 1

John has $30,000 in RRSP contribution room and has no RRSPs.  He has $50,000 in his savings account which he will use to buy a home.

To take advantage of the HBP, he simply contributes $25,000 (of the $50,000 sitting in his savings) into his RRSP.  After 3 months, the RRSP qualifies to be redeemed under the HBP. When buying his home he withdraws the money tax free from his RRSP as a registered HBP withdrawal.

When he files his taxes next year, he will still be able to claim a $25,000 tax deduction on his income tax.  If he is in a 30% tax bracket that would be a tax cred it of $7,500.*

 

Example 2

Mary has $15,000 in RRSP contribution room and has $50,000 sitting in her savings account which she will use as a down payment.

Mary can only contribute $15,000 to her RRSP as that is the maximum room she has. Therefore, she can maximize her RRSP by contributing $15,000.  After 90 days she can withdraw the entire $15,000 under the home buyers plan.  Remember $25,000 is the maximum you can withdraw under the HBP, but if you have less than $25,000 you can pull out all of it.

By contributing $15,000 she will get a tax refund of approximately $$4,500 assuming she is in a 30% tax bracket.*

When does this strategy not work?

  1. If you already have existing RRSP of $25,000 or over, that you plan on withdrawing for a home
  2. Only works for Individual RRSP’s and not for a Spousal RRSP

 

This strategy also works if you plan on using the RRSP as a withdrawal under the Life Long Learning Plan.

As you can see some advanced planning can go a long way.

 

 

*Individual tax rates and situation may vary. Speak to your accountant or tax preparer to get a more accurate picture of your individual tax situation.

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