Written by: Gwyneth James MBA CPA, CGA Senior Partner
You’ve been moving around and renting for the past five years or more, but now want to buy a home. Unfortunately, the only savings you have are in RRSPs. Don’t cash them in! The Home Buyer’s Plan (HBP) allows you to “borrow” up to $25,000 of your own savings. Fill out Area 1 of Form T1036 and take it to your financial advisor.
OR you have decided to return to school full-time. The Lifelong Learning Plan (LLP) allows you to “borrow” from your RRSPs up to $10,000 a year to a maximum of $20,000. Fill out Area 1 of Form RC96 and take it to your financial advisor.
These withdrawals will not be taxable and will not have tax withheld, but they must be repaid by making an RRSP contribution and flagging it as an HBP or LLP repayment on Schedule 7 of your tax return.
- For the HBP, payments start the 2nd year after you withdrew under the plan. You have 15 years to pay it all back.
- For the LLP, payments starts the year after you cease being a full-time student (to a maximum of four years). You have 10 years to pay it back.
Any year you miss all or part of the repayment, the balance of the amount that you were supposed to pay is added to your taxable income as if you withdrew from your RRSP. In some cases, for example a year of very low income, this is an effective tax saving strategy.
There are some restrictions that are beyond the scope of this article related to, for example, RRSP contributions in the 3 months before you withdraw under either plan, the definition of a “first-time homebuyer”, and the type of residence or post-secondary education that qualifies. Be sure to read up on these or consult an expert.