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Home Buyers Plan

A great opportunity exists for home buyers. It's called the Home Buyers Plan, which allows you and your wife to borrow up to $20,000 each tax-free from your RRSP (Registered Retirement Savings Plan) to buy your first home.

  • A rule to the Home Buyers Plan is the money must be in the RRSP for 90 days before it can be withdrawn, plus users of the plan cannot have owned a home for at least five years .
  • After about two and a half years after withdrawing money from your RRSP, Ottawa wants you to start repaying it back to your RRSP in 15 equal annual installments.
  • Miss a payment, and the taxman will be there to tax the money at your income tax rate.

It's not often that our government gives us a gift like this, so take advantage of it while you can

Owners of self-directed RRSPs - use caution with tax-free withdrawal schemes

Some promoters of financing schemes promise (RRSP) owners that they can make tax-free withdrawals from their RRSP's. Typically, the arrangement involves using an individual’s self-directed RRSP to purchase shares of a private company. The funds used to purchase the shares are then loaned back to the owner of the self-directed RRSP at low or no interest.

Marketers of these schemes promote them with claims such as "Take advantage of your RRSP now -- no tax to pay," or "I will loan you $5,000 to $250,000 over five years if your RRSP is locked in." Taxpayers who respond to these kinds of advertisements risk losing retirement savings and the tax benefits of those claims. If an RRSP is used as security for a loan, the value of the RRSP will be added to the taxpayer’s taxable income. Similarly, if an RRSP is used to purchase shares of a private corporation, and the shares are not a qualified investment under the rules, then the value of the shares will be added to the RRSP holder’s taxable income.

Taxpayers should consult with knowledgeable tax advisors before taking part in any scheme that promises a tax-free withdrawal of RRSP funds. Administrators and trustees are asked to advise clients that there may be tax consequences if non-qualified investments or loans are secured with an RRSP.