If you fall into one of the following scenarios, you may be able to take advantage of the Home Buyer’s Plan and benefit from significant tax breaks:
- You do not have enough cash for a down payment but have money in a Registered Retirement Savings plan (RSp).
- You have enough money for a down payment and have unused RSp contribution room.
In both cases you may be able to take advantage of the Home Buyers’ Plan – a government program that lets you withdraw from your RSp savings (even if you don’t currently have any), towards the down payment on your first home, tax-free and without paying a penalty.
How does the Home Buyers’ Plan work?
If your situation is represented by Scenario 1, then:
- Under the Plan, you and your spouse or common-law partner can each withdraw up to $25,000 from your RSp to help build or buy the same first home for a combined total of $50,000.
If your situation is represented by Scenario 2, i.e., you have unused RSp contribution room, then:
- You can contribute the money you’ve saved for your down payment into an RSp and benefit from a substantial tax refund. Your contributions must be within your eligible RSP contribution limit.
- After 89 days*, you can withdraw up to $25,000 each from your RSps plus, if you get a tax refund use it to increase the down payment on your first home.
- If you time your contributions right, you may be eligible to receive a tax refund in the same year you withdraw the funds under the plan.
Scenario 2 Example
| The following example is based upon unused RSp contribution room of $25,000 each, a 35% tax bracket for you and your spouse or common-law partner, assuming you’re both eligible for a tax refund and together, you’ve saved $50,000 for a down payment for your first home. | |
| Step 1 | Use your savings to contribute $25,000 each to your RSps. (These RSp contributions must be made by February 29, 2012 in order to claim them on your 2010 income tax returns.) |
| Step 2 | File your 2010 income tax returns as soon as possible and claim** your respective RSp contributions. |
| Step 3 | Based on 35% tax brackets and $25,000 each in contributions, you and your spouse or common-law partner could receive income tax refunds of up to $8,750 each, for a total of $17,500. |
| Step 4 | 90 days after making your contribution, withdraw your RSp funds through the Home Buyers’ Plan program. |
| Step 5 | Now you and your spouse or common-law partner have $67,500 ($17,500 tax refund + $50,000 Home Buyers’ Plan withdrawal) to use towards a down payment on your first home. |
| In all cases, individuals are advised to seek appropriate professional tax advice. | |
To ensure you do not pay tax on your RSp withdrawal under the Home Buyers’ Plan, you must repay the withdrawn amount to your RSp. Repayments will begin in the second year following the year that the funds were withdrawn with full repayment within 15 years. With the continuous savings plan from BMO Bank of Montreal, repaying your RSPs is convenient and manageable with monthly installments.
Additional details are also available at
www.cra-arc. gc.ca /tx/ ndvdls /tpcs / rr sp-reer/hbp_rap/menu_eng.html
*Funds need to be in RSp for 90 days before it can be withdrawn from the Home Buyers’ Plan.
**Your account with the Canada Revenue Agency has to be in good standing to qualify a refund.