Since 1957, when RRSP were first introduced to encourage Canadians to save for their retirement, there have been many changes that effect how money can go into and come out of them. Two programs that allow funds to be withdrawn for RRSP for purposes other than retirement income are the Lifelong Learning Plan (LLP) and the Home Buyers Plan (HBP). Here’s how they work.
Sam and Linda have raised their children to school age with Linda as a stay at home mom. She wants to re-enter the work force, but needs to upgrade her education so she can get back into her previous profession. Linda will be a full-time student. While raising their children. Sam and Linda contributed to RRSPs both in Sam’s name and in a spousal RRSP in Linda’s name. They can withdraw up to $10,000.00 each per year from their RRSPs, to a maximum of $20,000.00 total, to help pay for Linda’s education.They cannot however make withdrawals from Linda’s locked in- RRSP. Sam and Linda will be able to withdraw funds from their RRSP’s without having to pay taxes on them as long as Linda participates in a qualifying educational program at a designated educational institution. They will have to pay back the funds within 10 years ( sooner if the person who made the withdrawals dies, becomes non-resident or reaches age 71) Sam and Linda will be required to repay a portion of the original withdrawal each year. If all or part of a repayment is not made then the unpaid amount will be fully taxable.
Glenn and Jane started RRSPs as soon as they entered the workforce. They are now ready to buy a home and may withdraw up to $25000.00 each from their RRSPs toward the purchase. They cannot make withdrawals from Locked-in RRSP plans. The home must be in Canada and they must intend to occupy it as their principle residence within one year of buying or building it. Glen and Jane must also qualify as first time home buyer in order to withdraw funds from their RRSP and not pay taxes on them. This means that neither of them could have owned a home and occupied it as a principle residence “at any time during the period beginning Jan.1 of the fourth year before the year of the withdrawal and ending 31 days before the withdrawal. If Glen and Jane make an RRSP contribution 89 days prior to making a withdrawal for HBP purposes, they will not get the tax deduction. Glen and Jane will have 15 years to repay their withdrawals ( sooner if the person who made the withdrawal dies, becomes a non-resident or reaches age 71) A minimum payment must be made each year. If all or a part of the required annual repayment is not made, then the unpaid amount must be included as income for tax purposes. – M Dumond
This article is intended to provide a brief overview of the life long Learning Plan and the Home Buyers Plan for Canadian residents and is not intended to provide specific advice. For a free copy of the Canada Revenue Agency (CRA) guide for either plan, or help in these areas please contact our office and speak with Susan or Michael.