RRSP First time Home Buyer Plan questions

[canabiz]

I have a couple of questions regarding the RRSP First Time Home Buyer Plan, hope to get some insights here before I contact the banker

I took out $20K from my RRSP this summer (July) as a downpayment for our house. I was told at the time that I would have to pay this one back within a 20 year period so on average about $1,300 per year

Question 1: When does the bank consider it the first year for the 20-year period. Is it this year because I took out the money in the summer or is it next year?

Question 2: Is there any penalty/issue if I put in more than $1,300/year towards the repayment, thus reducing the 20-year time period.

Question 3: Say my RRSP contribution limit for 2008 is $7,000. I max it out and put in another $4,000 which represent 3 years of RRSP re-payment. Do i need to specify this to the CRA (filling out some forms) or do they and the bank know what's going on and don't ding me on the over-contribution?

Apologies if these topics have been covered before. I did a search but didn't see anything.

[pitz]

I took out $20K from my RRSP this summer (July) as a downpayment for our house. I was told at the time that I would have to pay this one back within a 20 year period so on average about $1,300 per year


Its 15 years, if i recall correctly, and you have to pay at least 1/15th back every year.


Question 1: When does the bank consider it the


The "bank" doesn't care, but if you don't make the required payment, you are forced to include the foregone payment as 'income' on your income tax return.


Question 2: Is there any penalty/issue if I put in more than $1,300/year towards the repayment, thus reducing the 20-year time period.


No, you can pay it off as quickly as you want, but you must make a payment of 1/15th of original amount every year. You can't prepay a bunch of it, and then take a payment holiday for a few years, for instance.


Question 3: Say my RRSP contribution limit for 2008 is $7,000. I max it out and put in another $4,000 which represent 3 years of RRSP re-payment. Do i need to specify this to the CRA (filling out some forms) or do they and the bank know what's going on and don't ding me on the over-contribution?


The 'bank' doesn't care about your payments at all. You have to specify the amounts of your RRSP contributions that are towards HBP repayment on your tax return on the appropriate forms.



Apologies if these topics have been covered before. I did a search but didn't see anything.

There's a guide on the CRA website. Note that the banks have absolutely *no* role in policing your payments. You could walk up to your local bank counter and contribute a billion dollars to a RRSP if you wanted to -- the banks would accept it (though the CRA would fine you heavily).

[smihaila]

I was told at the time that I would have to pay this one back within a 20 year period so on average about $1,300 per year

Not quite true. It's not mandatory to pay it back! This is one of the stupid myths perpertraded by CRA and the banks. There is a "should", not a "must" in the tax act.

In fact, it's a good strategy to not pay, if the money were taken from a spouse with low income or with a future low income ;)

[grant]

Question 1: When does the bank consider it the first year for the 20-year period. Is it this year because I took out the money in the summer or is it next year?
If you withdrew the money in June of 2007, then you must begin repaying in 2008 taxation year... so the money must be in the RRSP by February, 2009. (to be declared on your april 2009 return)

Question 2: Is there any penalty/issue if I put in more than $1,300/year towards the repayment, thus reducing the 20-year time period.
In 2009 you must repay 1/15th of whatever the outstanding balance is,
In 2010 you must repay 1/14th,
etc. until:
2023 = repay 100% of the outstanding balance.

If you decide to repay a greater amount than required, it will reduce your mandatory payments equally in all subsequent years.

Question 3: Say my RRSP contribution limit for 2008 is $7,000. I max it out and put in another $4,000 which represent 3 years of RRSP re-payment. Do i need to specify this to the CRA (filling out some forms) or do they and the bank know what's going on and don't ding me on the over-contribution?
In your tax return you specify how much is deductible contribution and how much is a HBP repayment.

[alanbrenton]

Is there any point in contributing to a spousal RRSP if the other spouse isn't working anyway, at least for the moment? What about attribution if not enough years (2 I believe) have passed?

[Thalo]

Is there any point in contributing to a spousal RRSP if the other spouse isn't working anyway, at least for the moment? What about attribution if not enough years (2 I believe) have passed?

Yes, it's a good idea, especially vis a vis HBP withdrawals. With RIF income splitting spousal RSPs for retirement are kinda redundant anyway. But for the HBP they're very useful because you can each withdraw up to $20K, so if one spouse is the breadwinner he makes equal contributions into both personal and spousal RSP, claims the tax deduction on all of it and then each spouse does a seperate HBP withdrawal.

Regarding attribution, It still gets attributed back to the contributor as income if the withdrawal happens within 2 years of contribution.

[babysham]

Te be eligible for The HBP, money that has been sitting in your RSP for at least 90 days.

Question: How does the CRA ensure that the money has been in RSP for at least 90 days?

[pitz]

In 2009 you must repay 1/15th of whatever the outstanding balance is,
In 2010 you must repay 1/14th,
etc. until:
2023 = repay 100% of the outstanding balance.

This is wrong. You have to pay at least 1/15th of the *original* balance each year, until it is entirely paid off, in order to avoid any inclusion of the HBP withdrawal in income.

As mentioned by another poster...there are circumstances in which you may not want to repay the HBP, especially if you run into a year or two with low income or other losses.

[alanbrenton]

Yes, it's a good idea, especially vis a vis HBP withdrawals. With RIF income splitting spousal RSPs for retirement are kinda redundant anyway. But for the HBP they're very useful because you can each withdraw up to $20K, so if one spouse is the breadwinner he makes equal contributions into both personal and spousal RSP, claims the tax deduction on all of it and then each spouse does a seperate HBP withdrawal.

Regarding attribution, It still gets attributed back to the contributor as income if the withdrawal happens within 2 years of contribution.

Hi Thalo,

Thanks for the response. So to get around the attribution, money has to be sitting there for at least 2 years? If income gets attributed, does this mean the spousal RRSP is in effect not eligible for the HBP?

[grant]

This is wrong. You have to pay at least 1/15th of the *original* balance each year, until it is entirely paid off, in order to avoid any inclusion of the HBP withdrawal in income.
I may be wrong, but the CRA agrees with me:

http://www.cra-arc.gc.ca/tax/individuals/topics/rrsp/hbp/repayments/howmuch-e.html

Maybe you could provide some explanation for your opinion besides "this is wrong"?

[Thalo]

Hi Thalo,

Thanks for the response. So to get around the attribution, money has to be sitting there for at least 2 years? If income gets attributed, does this mean the spousal RRSP is in effect not eligible for the HBP?

Yes. Let's say one spouse contributes $20K into both a personal and a spousal RRSP. Money sits in there for a year. Both spouses withdraw $20K. The first $20K withdrawn is an HBP withdrawal for the contributing spouse, the 2nd $20K is a deregistration, taxable to the contributing spouse.

[mystical2003]

I may be wrong, but the CRA agrees with me:

http://www.cra-arc.gc.ca/tax/individuals/topics/rrsp/hbp/repayments/howmuch-e.html

Maybe you could provide some explanation for your opinion besides "this is wrong"?

The Math agrees with Both of you...

20000/15=1333.33
(20000 - 1333.33)/14=1333.33
(20000 - 1333.33 - 1333.33)/13 = 1333.33

etc etc

[fl4wless]

The Math agrees with Both of you...

20000/15=1333.33
(20000 - 1333.33)/14=1333.33
(20000 - 1333.33 - 1333.33)/13 = 1333.33

etc etc

no it doesnt...read the whole example....

[Blunt]

This is wrong. You have to pay at least 1/15th of the *original* balance each year, until it is entirely paid off, in order to avoid any inclusion of the HBP withdrawal in income.

As mentioned by another poster...there are circumstances in which you may not want to repay the HBP, especially if you run into a year or two with low income or other losses.

I understood the 1/15th to be a minimum payment each year. Therefore, after the 2nd year you can pay it all back if you wanted.

[charliebrown]

There really isnt a "repayment" per se; as the money is yours to begin with

More like, a designation of where your RRSP contributions for a subsequent year goes

i.e. for simplicity sake, lets say you withdraw $15,000 from your RRSP in 2005

So "repayments" must start in 2007 (i.e. 2nd year after year of withdrawal)

Meaning, that when you contribute money towards your RRSP in 2007, you are to designate on your 2007 tax return the portion related to the HBP repayment

examples: http://www.cra-arc.gc.ca/tax/individuals/topics/rrsp/hbp/repayments/howmuch-e.html

[babysham]

Te be eligible for The HBP, money that has been sitting in your RSP for at least 90 days.

Question: How does the CRA ensure that the money has been in RSP for at least 90 days?

anybody know the answer to this?

[mystical2003]

no it doesnt...read the whole example....

I stand corrected... I was more trying to point out that if just the minimum payment is made each year the math agrees. But yes if more then the minimum is paid then the math will not agree to both. Paying more then the minimum rarely makes sense though...

[pitz]

Maybe you could provide some explanation for your opinion besides "this is wrong"?

Hmmm.. ok, I guess I'm the one giving bad advice... Prepayments do reduce future required payments, but still don't let you take a payment holiday under any circumstances.