First Time Buyer Opportunity - Use your RSP as part of your Downpayment!
If you are considering buying your first home or condo in the Greater Toronto Area (GTA) in the near future, it's time to start thinking of the RSP season and the "Free Money*" you could potentially gain by buying a home or condo.
The RSP deadline to contribute for the 2022 tax year is the 1st of March, 2023. It's amazing how quickly that day approaches, particularly if you have not saved up for the current year's contribution or if you have not made monthly contributions during last year.
If you are a first-time buyer looking to buy in the (GTA) Greater Toronto Area, you are entitled to withdraw up to $35,000 from your RSP to be used for the purchase of your home. If you are a couple that can be up to $70,000 which puts quite a dent in the down payment.
Best of all is the withdrawal is not taxable as long as you repay it within a 15-year period. The payback amount is at least one-fifteenth a year of the amount you withdrew from your RRSP.
If you do not yet have a RSP set up, as long as you deposit up to $35,000 in a RSP bank account before March 1 and leave it in your account for at least 90 days. Then you can withdraw the money and use it towards the purchase of a home. By doing this you will receive a tax refund of potentially up to $13,000 per person depending on your income. This is almost like "Free Money*" and can be added to your down payment OR used for other items related to the purchase of the home.
There are a few guidelines that have to be followed:
- You must be a Canadian resident
- The RSP plan must be in your name.
- You have to be a first-time buyer. You will be considered a first-time buyer as long as you or your spouse/common-law partner has not owned a house as a principal residence for approximately 5 years.
- You must have a firm written agreement of Purchase and Sale.
- It must be your intention to live in the home as your principal residence within 12 months of making the withdrawal from your RSP account.
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* As with most things in life it is not really Free. It is however a great way to borrow money at no cost and at the same time allow one to take advantage of cash now while deferring your taxes. In many cases, it ensures that you can have enough down payment sooner than if you had to save for it.