RRSP based mortgage exempt from withholding tax

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Home Buyers’ Plan (HBP)
The HBP is a program that allows you to withdraw up to $25,000 per person (or $50,000 per couple) from your registered retirement savings plan (RRSP) to buy or build a qualifying home. Withdrawals that meet all conditions do not have to be included in income and there is no withholding tax.

Conditions for participating in the HBP:

• You have entered into a written agreement to buy or build a qualifying home, You intend to occupy the home as your principal residence.
• You or your spouse or common law partner have to be considered a first-time homebuyer i.e. have never owned or have not owned in the last 4 calendar years and 31 days before withdrawal.
• Your HBP balance on January 1 of the year of the withdrawal has to be zero i.e. nothing is outstanding from a previous purchase.
• Neither you, nor your spouse or common-law partner can own the home more than 30 days before a withdrawal is made.
• You must be a resident of Canada.
• You must complete form T1036
• You have to receive all withdrawals in the same year.
• You have to buy or build the home before October 1 of the year after the year of the withdrawal.
• When an RRSR contribution is made, you must wait 90 days before withdrawing funds under the HBP or you may be denied the right to use that contribution as an RRSP deduction for that year.
• The home can be for you or it can be for a related disabled person if it is more accessible to that person than his or her current home, or it is better suited to that person’s needs. You can acquire the home for the disabled person, or you can provide the withdrawn funds to the disabled person to acquire the home.

Repayment of the RRSP funds
Repayment of the funds back to your RRSP must be made within a period of no more than 15 years. Generally, in each year of your repayment period, you have to repay 1/15 of the total amount you withdrew until the full amount is repaid. Your repayment period starts the second year following the year in which you made your withdrawals. If the required amount is not repaid in a year, that year’s repayment amount will be added to your income and taxed accordingly. Repayment can occur earlier if you wish.

Home Buyers Plan (RRSP) Example:
Mr. Smith has $30,000 in his RRSP account. He has not lived in his principle residence for more than 7 years. Under the Home Buyers Plan can now withdraw up to $25,000 for the purpose of buying a new home. He plans to pay back his RRSP as soon as possible but has up to 15 years to do so. The RRSP that he withdrew are non-taxable under this plan.