First time homebuyers beware – withdrawals from your registered retirement savings plan (RRSP) may be taxable. A recent Toronto news article described a situation in which a first time homebuyer withdrew money from her RRSP’s without first declaring to her bank that she was a first time homebuyer – she received a $5,000 tax bill.
To avoid making the same mistake, first time homebuyers who plan to withdraw money from their RRSP’s for a home down payment should consult Canada Revenue Agency’s (CRA) website, specifically the Home Buyers’ Plan (HBP). The HBP allows a first time homebuyer to withdraw up to $25,000 from their RRSPs in a calendar year to buy a qualifying home without triggering income tax liability on the withdrawn amount. Generally, all withdrawals have to be repaid within a period of no more than 15 years. A first time homebuyer has to repay at least a prescribed minimum amount to their RRSPs each year until their HBP balance is zero. If the minimum amount is not repaid in a given year, it will be included in their income for that year.