Normally, withdrawals from an RRSP result in an income inclusion to the planholder. However, under the Home Buyers' Plan ("HBP"), an individual is generally permitted to make a tax free withdrawal from his or her RRSP to acquire a "qualifying home" (which generally means a home located in Canada) if the individual or the individual's spouse is considered a first time home buyer. A first time home buyer is, generally, someone who has not owned a principal place of residence in the year of making the HBP withdrawal and the 4 previous years. Currently, the eligible withdrawal limit is $25,000 per buyer, which must be repaid on an annual basis during a 15 year period. To the extent a required yearly repayment is not made, the missed payment will be included in income.
This means that an individual may, essentially, borrow up to $25,000 from his or her RRSP, tax and interest free, under the HBP (on a 15 year term) to buy a home where they are a first time home buyer. Where there is a spouse, each spouse must be a first time home buyer. Spouses can each withdraw up to $25,000 for a total of up to $50,000.
The HBP allows individuals to make withdrawals from their RRSP's to buy a home for a related person with a disability (who is entitled to a disability tax credit (see Tax Tip 12-23) or to help that individual buy a home. Related persons are individuals connected by blood, marriage, common-law partnership or adoption. Where funds are withdrawn under the HBP to acquire a home for a related person with a disability, the first time home buyer condition will not have to be met if the purpose is to acquire a home that is more accessible or better suited to the needs of the person with the disability. Similarly, if the individual acquiring the home is the person with a disability, he or she will not need to meet the first time home buyer condition, provided the home is more accessible or better suited to the person's needs.
Where an individual makes a withdrawal from his or her RRSP under the HBP to help a related person with a disability to buy a qualifying home, the related person must be the one who enters into the agreement to purchase. Where the person withdrawing the funds is the one acquiring the home for the related person, the person withdrawing the funds (not the relative with the disability) must be the one entering into the purchase agreement.
The ability for a family member to use RRSP funds to assist a relative with a disability to purchase an accessible home is an opportunity that should not be overlooked.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.