The RRSP Home Buyers Plan is a plan that allows a first time home buyer to take money out of their RRSPs and put towards the the purchase of their new home. That money can be used for anything (furniture, down payment, your land transfer tax, etc). Because you didn’t pay income tax on the money going into the account and you are able to withdraw it without paying the income tax on it (which is what happens when you withdraw your RRSPs), you end up being able to put more money towards the house. You do have to put the money back into your accounts within 15 years and if not, you have to pay the income tax at that point.
Yesterday the Federal Government announced two changes to the RRSP Home Buyers Plan, which is used by First Time Home Buyers on the purchase of their new home.
- Increase to the maximum amount you can withdraw tax free towards the purchase of a home: the limit has been increased from $35,000 to $60,000 for each first time home buyer that is purchasing the home. So, if you and your spouse each have $60,000 in RRSPs you could withdraw $120,000.
- Increase the time you need to start putting the money back into your RRSP from 2 years to 5. At that point the clock starts ticking on the 15 year clock at this point.
I do think that the second change is a good improvement. I find that as a first time home buyer you need some time to get settled with your new bills to be able to start understanding your expenses. So, you end up have 20 years to pay back the RRSPs.
The first change is good, but I don’t see a lot of first time home buyers who have even near the $35,000 current minimum. But for those that do, that’s great.
If you want more information on the benefits available for First Time Home Buyers or the RRSP Home Buyer plan specifically please select the Get Started Button!