RRSPs and the Home Buyers’ Plan (HBP)
It’s RRSP time again, and many people may be trying to decide whether or not to invest their money in an RRSP. As you make that decision, don’t overlook the possible financial advantage of the Home Buyers’ Plan (HBP).
With the HBP, anyone who hasn’t owned a home in the last five years can use funds in their RRSP as a down payment. Each person who qualifies can withdraw up to $25,000 toward the purchase of an existing home or the building of a new one. This means that couples who purchase a home jointly could use up to $50,000 of their RRSP contributions towards their purchase. The money used must have been contributed to your RRSP at least 90 days prior to being withdrawn for the HBP or you won’t be eligible to deduct it on your tax return.
In most cases the money must be repaid to your RRSP over the course of 15 years, beginning the second year after it is withdrawn, or it will be added to your income and subject to tax.
If you are considering using the HBP, you must weigh the benefits of a smaller mortgage and less interest, against the loss of tax-free compounding and earnings in an RRSP.
The HBP is subject to a number of rules and individuals should ensure they have all of the appropriate information prior to making a decision.
Don’t forget that March 3rd, 2014 is the deadline for contributing to an RRSP for the 2013 tax year!
Jennifer Curran, CPA, CA
Senior Manager – Tax