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Money Management Newsletter: RSP
Planning RRSPs may be more than just about retirement While RRSPs are meant to help Canadians prepare for retirement, some people may opt to use their plans to buy a home or pursue an education. Home Buyers Plan The Home Buyers Plan or HBP allows an eligible individual to borrow up to $20,000 interest free and tax free, from their RRSP to acquire an owner-occupied principal residence in Canada. This means that each of two or more joint owners may use the HBP for the purchase of the same residence. Use of the HBP more than once is possible if you meet certain qualifications. In general, you or your spouse can not have owned a principal residence in the four immediately preceding calendar years and the previous HBP withdrawal must have been repaid in full prior to the calendar year of the current withdrawal. Form T1036 is used. A disabled person (someone eligible for the disability credit) or a supporting individual is able to access the HBP regardless of the above time limits, provided the other conditions are met. The "Statement of Account—Home Buyers' Plan" (provided by CCRA) allows you to designate the appropriate portion of your current RRSP contribution as your Home Buyers' Plan repayment for the year. The result is that your current RRSP contribution is reduced by the HBP repayments to determine the deductible RRSP contribution. In the event that no current contribution is made, or the current contribution is less than the required repayment, the difference is added to taxable income. In effect, it becomes a taxable RRSP withdrawal. Editors note: In other words, if you don’t repay any part of the scheduled (annual) loan repayment, the difference (deficiency) will be added back in to “income” and may have a effect on the amount of income tax due for that taxation year. A qualifying home must be acquired by October 1 of the year after the year of withdrawal and you must intend to occupy the home within 1 year of buying or building it. Repayments to an RRSP must commence no later than the second year after the year of withdrawal. The $20,000 (or lesser amount) must be repaid in annual installments over 15 years. Repayments are designated on schedule 7 of your T-1 return.
Lifelong Learning Plan Under the Lifelong Learning Plan an individual is able to withdraw, tax-free, up to $10,000 per year from his RRSP where the individual or his spouse is in full-time training or higher education for at least three months during the year. A maximum of $20,000 is permitted to be withdrawn over as many as five years. Repayments similar to those under the HBP are required. The maximum repayment period is 10 years, beginning the year after the last year the student was a full-time student, or in the sixth year following the first withdrawal, whichever is earlier.
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, Fiscal Agents Money Management Newsletter
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