By Gigi Suhanic
National Post
FP Money
Saturday December 13, 2003

Question: Is there a time limit on how long your money has to be in an RRSP account before you can withdraw it to purchase your first home without a tax penalty?

Answer: A spokeswoman at the Canada Customs and Revenue Agency, says funds have to be in an RRSP for 89 days. On the 90th day, you qualify, under the first-time Home Buyers' Plan (HBP), to withdraw the money to buy a house.

The plan allows Canadians to use RRSP funds tax-free to buy homes. Usually, when RRSP funds are taken out before retirement, the amount withdrawn is added to your annual income in the year of withdrawal. With the HBP, the taxable income part is suspended.
To qualify as a first-time buyer, you, your spouse or common law partner must not have owned a home that you used as your principal residence during the period beginning Jan. 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal. You can take out up to $20,000 to put toward the purchase. If two people are buying a house together, each qualifying person is allowed to withdraw this maximum.

And, finally, what goes out must come back in.

Before you can withdraw anything, however, you need to have an agreement in place to buy a house, and you also need to swear it will be your personal residence.

Under the HBP plan, you have 15 years to put what you withdrew back into your RRSP. You'll need to make minimum annual contributions of 1/15th of the total until it's all repaid. If you don't repay the amount due in one year, it will be added to your income for that year.

So you don't forget, the taxman will send you an HBP statement of account on your annual Notice of Assessment. It will show your total HBP withdrawal, what you've repaid to date, your balance and what you should repay the following year.

"The bigger question is do you have a plan action to pay off the mortgage as soon as possible. If you do that's one that's really going to save your bacon," says Adrian Mastracci of KCM Wealth Management in Vancouver.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.