RRSPs and Home Buyers

Aoife O’Reilly

Buying a home is a significant milestone and a goal many of us have. The Canadian real estate market, however, is making that goal harder to achieve.

A recent report confirmed that three of Canada’s largest cities – Vancouver, Toronto and Hamilton – are the least affordable for purchasing property. It is no surprise, therefore, that one-third of Canadians believe that they will never be able to own a home. Participating in a RRSP or a group RRSP is a great way to step on the property ladder. This article outlines what the Home Buyers’ Plan is and how you can use savings from your RRSP or group RRSP to buy your dream home.

What is a RRSP?

In 1957, the Registered Retirement Savings Plan (RRSP) was introduced to encourage Canadians to invest in retirement. Any Canadian employee over the age of 18 can set up and start contributing to a RRSP until they reach 71 years of age. It’s a cost-effective means of saving for retirement.The maximum contribution is 18% of gross income earned per annum. For 2022, the annual contribution to a RRSP is 18% of annual gross income for 2021, at a maximum of $29,210.

How does a Group RRSP differ?

Group RRSPs are savings plans offered by employers. They are very similar to individual RRSPs but offer additional benefits such as receiving matching contributions from your employer. This allows you to increase the amount saved each year without any additional financial commitment. Fees are typically lower for group RRSPs too, due to the number of plan participants. Tax-free withdrawals under The Home Buyers’ Plan are available for both individual RRSP and group RRSP members.

The Home Buyers’ Plan

The Canadian government introduced the Home Buyer’s Plan in 1992 to assist Canadians with their first home purchase. Under this scheme, prospective home buyers with funds in a Registered Retirement Savings Plan (RRSP) can withdraw up to $35,000 tax-free for purchasing their first home. The loan must be paid back in full within 15 years. There are specific conditions that apply to the scheme:

• You must be a first-time buyer – meaning you have not owned a home in the four years leading up to the purchase

• You must provide written agreement of your intent to buy or build a home

• You must be a Canadian resident

• You intend to occupy your property as your principal residence

The Home Buyer’s Plan offers many benefits. It is essentially an interest-free loan going towards an excellent investment opportunity. It’s worth noting that if you are buying or building a home for a relative with a disability, the first-time buyer requirement is not necessary. Married or common-law couples can withdraw $35,000 each to go towards the same home purchase.

For over 25 years, we have helped employers implement group retirement plans. Looking for more information about our group RRSPs? Contact us here to get more information about the customizable group retirement plans we offer.