Home Buyers Plan - Question

[KA1]

If I remember correctly what they told me was that I have to pay the amount (which I withdraw from RRSP) as a deposit to the builder by the October the following year, regardless of when the actual occupancy/closing is. But I agree that the information available is not clear or is not being interpretted consistently.

Most of you are coming to the conclusions based upon what someone said to you. What someone said to you, in turn, depends upon that individual's knowledge, that in turn, might have come from what that individual was told.

With all due respect, this is the classic example of a blind leading a blind. Nobody has bothered to go to the source.

In my earlier post (# 8), I have pasted a link to CRA booklet on Home Buyer's Plan. Here, I am reproducing a few quotes from that book.

On page 6, it is stated that to withdraw funds, you must, first, have entered into a written agreement.

Page 7: you have to fill form T 1036 for each eligible withdrawal.

Page 8: this page has the most important information.

You have to buy or build the qualifying home before October 1 of the year after the year of the withdrawal. For example, if you withdrew money from your RRSP in, say, 2009, you have till October 1, 2010 to buy or built a habitable house.

And now the important point.

If you have not bought or built a house before the deadline of October 1, 2010, then, there is an extension of 1 more year -- till October 1, 2011. You have to meet one (1) of the following two(2) conditions:

(a) you have till October 1, 2011 to buy a qualifying home provided you had a written agreement to purchase a unit by October 1, 2010.

OR

(b) if your home is being built, you have given to the contractor, by October 1, 2010, an amount equal to the amount of your withdrawal towards the purchase of material or construction.

conditions in item (b) clearly applies in a situattion where a housing unit is being built specifically for you. However, it can reasonably be argued, that, when you give condo builder down payment upon signing the purchase agreement, then, you are giving builder an advance payment for the purchase of material and construction of unit.

As stated above, payment in condition (b) has to be equal to the withdrawal from RRSP.

One could, definitely, be in trouble, if the down payment to the builder was, say, $ 10,000.00 and withdrawal from RRSP was, say, $ 25,000.00

Read example 5 on page 8.

Happy reading on this easy, lazy Victoria Day.

 

[aiekon]

This is an extremely ignorant question: but what is the whole pt of taking $ from RRSP to purchase a home?

Because you can withdraw $25,000 without penalty or associated taxes.

For me, my company had an RSP matching plan so it made sense to contribute as much as I could into my RSP and later use this amount (double of what I put in) for my downpayment. Also, I put my bonuses into my RSP so that I wouldn't be taxed on it. Lastly, I wanted to maximize my RSP contributions so that I could receive a refund at the end of the year which was then reinvested back to into my RSP HBP savings.

So, in my example, I contributed to my RSP for the sole purpose of using it under the HBP. I was able to save for my downpayment faster and more efficiently then if I just put it away elsewhere.

 

[onfence]

Because you can withdraw $25,000 without penalty or associated taxes.

For me, my company had an RSP matching plan so it made sense to contribute as much as I could into my RSP and later use this amount (double of what I put in) for my downpayment. Also, I put my bonuses into my RSP so that I wouldn't be taxed on it. Lastly, I wanted to maximize my RSP contributions so that I could receive a refund at the end of the year which was then reinvested back to into my RSP HBP savings.

So, in my example, I contributed to my RSP for the sole purpose of using it under the HBP. I was able to save for my downpayment faster and more efficiently then if I just put it away elsewhere.

If I have $25,000 sitting in a reg bank a/c and use it to buy a home, how would it be penalized or taxed? Thx.

 

[GraphicMatt]

If I have $25,000 sitting in a reg bank a/c and use it to buy a home, how would it be penalized or taxed? Thx.

That money saved conventionally has already been taxed, either off your paycheque or at income tax time. RSP contributions are not taxed, so that if I make $40,000/year and put $2,000 that year into my RSP, my effective taxable income is $38,000.

When you withdraw money from an RSP, it is taxed as normal income, except in the case of the Home Buyer's Plan. You do have to pay the amount you've withdrawn back into your RSP, however, over the course of 15 years (IIRC).

 

[onfence]

That money saved conventionally has already been taxed, either off your paycheque or at income tax time. RSP contributions are not taxed, so that if I make $40,000/year and put $2,000 that year into my RSP, my effective taxable income is $38,000.

When you withdraw money from an RSP, it is taxed as normal income, except in the case of the Home Buyer's Plan. You do have to pay the amount you've withdrawn back into your RSP, however, over the course of 15 years (IIRC).

So, if I have $25k in a reg a/c and $25k in my RRSP a/c, which is better to use to buy a home? Is it the same thing since both will not be taxed? Thx.

 

[aiekon]

So, if I have $25k in a reg a/c and $25k in my RRSP a/c, which is better to use to buy a home? Is it the same thing since both will not be taxed? Thx.

That really depends on you. As GraphicMatt mentioned, if you withdraw from the HBP you have to pay it back over a course of 15 years or so. If you already HAVE the downpayment sitting in a regular account then perhaps it's better to use that amount for your downpayment and not have to worry about having to come up with that amount again later. It's probably better if you speak to your financial advisor about your particular situation. Again, in my situation I put my bonuses, etc. into my RSP to be used under the HBP so that I wouldn't be taxed on those amounts.

Also keep in mind that you don't necessarily need to use the HBP for a downpayment. I had enough in a regular account to cover most of my downpayment so I withdrew from the HBP to use for part of the downpayment, furniture, closing costs, etc.

 

[Hank]

Although this may not be the case for you, it goes without saying that you should contribute the $25,000 in your bank account to your RRSP if you have any remaining contribution room, then take money out of your RRSP for the HBP.

 

[johnpeter123]

With just a few clicks of the mouse, home buyers can search through hundreds of online listings, view virtual tours, and sort through dozens of photographs and aerial shots of neighborhoods and homes.Good real estate agents will listen to your wants and needs and arrange to show only those homes that fit your particular parameters. Your agent should preview homes before showing them to you as well.