|
Situation
|
1
|
2
|
3
|
4
|
|
Person responsible for meeting conditions
|
Y
|
Y
|
Y
|
RDP
|
Y
|
RDP
|
|
Conditions to meet before applying to withdraw funds
|
|
|
|
|
|
|
|
Enter into agreement to
buy or build qualifying home
|
Y
|
Y
|
Y
|
N/A
|
N/A
|
Y
|
|
Intend to occupy
qualifying home as principal place of residence
|
Y
|
Y
|
N/A
|
Y
|
N/A
|
Y
|
|
Be considered a first-time buyer**
|
Y
|
N/A
|
N/A
|
N/A
|
N/A
|
N/A
|
|
HBP balance on Jan. 1
of year of withdrawal is $0
|
|
|
|
|
|
|
|
Conditions to meet when a withdrawal is made
|
|
|
|
|
|
|
|
You or your spouse can't
have owned the qualifying home more than 30 days before withdrawal is made
|
Y
|
Y
|
Y
|
N/A
|
N/A
|
Y
|
|
Resident of Canada
|
Y
|
Y
|
Y
|
N/A
|
Y
|
N/A
|
|
Completion of Form T1036
|
Y
|
Y
|
Y
|
N/A
|
Y
|
N/A
|
|
Receipt of all withdrawals in same year
|
Y
|
Y
|
Y
|
N/A
|
Y
|
N/A
|
|
You cannot withdraw more than $20,000
|
Y
|
Y
|
Y
|
N/A
|
Y
|
N/A
|
|
Comdition to meet after your withdrawals have been made
|
|
|
|
|
|
|
|
Buy or build the
qualifying home before Oct. 1 of the year after the year of withdrawal
|
Y
|
Y
|
Y
|
N/A
|
N/A
|
Y
|
** NB. You are not considered to be a first time homebuyer if, at any time during the period beginning January 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal, you or your spouse owned a home that you occupied as your principal place of residence.
Benefits from using the Home Buyers' Plan.
The utilization of your RRSP's within the guidelines of the HBP results in benefits that are quantifiable immediately and extend over the long-term:
- Increased down payment
- Decreased principal owing
- Avoidance of substantial interest costs over that accrue over long periods
Establishing an RRSP with borrowed funds for a tax refund.
The "HBP" permits an individual to establish an RRSP with borrowed funds, and then use the resultant tax refund for a down payment. In this scenario:
- The individual borrows funds that are contributed to an RRSP.
- After a 90-day period, the RRSP is collapsed to repay the loan.
- The client receives a tax refund that can be applied to the purchase of a home.
These funds re considered as an acceptable source of down payment provided that:
- The tax refund is in the individual's hands at the time of closing.
- The lender can verify that the borrower has proven liquidable assets equal to a minimum equity of 5% of the purchase price.
As Mortgage Consultants we will:
- set up a meeting to determine each client's approximate refund amount
- arrange the RRSP loan
- provide a mortgage pre-approval based on the information provided
The clients must supply their most recent Notice of Assessment or their last pay stub for the previous year showing year to date earnings and taxes paid.
Managing Tax Refunds
The government does not monitor the funds that are withdrawn from RRSP's for the purposes of the HBP. Therefore, providing that an individual has qualified as a buyer and has purchased a qualifying home, they may do whatever they desire with the money. Furthermore, the income tax refund received may be used in whatever manner decided, such as:
- Clearing the balance on credit cards
- Reducing, or retiring, personal loans
- Making lump sum payments on a mortgage
- Purchasing household necessities - appliances, furniture, accessories etc
- Increasing the down payment to reduce/avoid default insurance premiums
- Paying for legal fees and or tax adjustments
The more debt you are able to pay off, the less in monthly expense obligations you will have. This will ultimately put you in a much better financial position.
What else should you know?
The Home Buyers' Plan enables you to borrow money to top up your RRSP plan using accumulated RRSP eligibility limits. If your tax assessment notice indicates you are eligible for $18,000 in contributions in the current year, and you already have $4,000 in a self-directed plan, you are allowed to borrow - subject to credit approval - the $16,000 to buy the RRSP required to bring you up to the $20,000 Home Buyers' Plan limit.
Then you can claim the eligible deduction against your current year's income in order to get a large tax rebate. You can use the rebate to pay down the loan or apply it to the cost of buying the home. Here, of course, the amount of tax you're paying each year is an important factor. If the $16,000 deduction in this example results in a $5,000 tax rebate, it can be used as you see fit. If, on the other hand two partners each earning $80,000 per year take their maximum RRSP of $20,000 each in the current year, they could net a total of $15,000 or more in a tax rebate.
You are then allowed to withdraw up to the $20,000 maximum from the RRSP 90 days after topping up or creating the plan, subject to the re-deposit requirements described above.
Be Careful - If you're planning to borrow the money for the maximum RRSP, you could end up disqualifying yourself for a mortgage because your monthly payments will be too high. Your "total debt servicing ratio" - the proportion of your gross income required to service both the home related costs and other monthly obligations - may exceed the usually acceptable monthly maximum of 42%. Another $600 per month could well make the difference in whether or not you'll qualify for a mortgage. As your mortgage consultant, I am the best person to advise you on this process.
