New Changes To Home Buyer’s Plan: Using Your RRSP For Down Payment After A Separation

You may already be aware of the Government’s Home Buyer’s Plan where a first time home buyer can use up to $35,000 for a down payment on a property. The Home Buyer’s Plan can also be used for those who have not owned a home in 4 years as they are considered first time home buyers.

Starting January 1st 2020, home buyer’s who have separated from their spouse or common-law partner can be considered as a first time home buyer and can use their RRSPs to either buy a new home or buy the matrimonial home from their ex-partner under certain conditions:

• Individuals must have separated from their partner within the past four years and have been living apart from them for a minimum of 90 days when the withdrawal is made.
• They cannot be living with a new spouse or common-law partner when the new withdrawal is made.
• If the individual owns and occupies a home that was the individual’s principal place of residence at the time of the withdrawal, either:

- That home is not the qualifying home that the individual intends to acquire with the funds obtained from the withdrawal, and the individual sells the home (or disposes of their interest or right in the home to their separated spouse or common-law partner) no later than the end of the second calendar year after the year of the withdrawal,

or

- The individual otherwise acquires the interest or right of their separated spouse or common-law partner in the home (e.g., where the home is the matrimonial home) no earlier than 30 days before the withdrawal and no later than September 30th of the year following the withdrawal;

and

- If the individual has a new spouse or common-law partner at the time of the withdrawal, the new spouse or common-law partner does not own and occupy a home that is the individual’s principal place of residence.

This may be a great relief for Canadians in the process of separation who need access to their retirement funds in order to buy a new home or their matrimonial home as separating is stressful enough without the thought of where one is going to live.

When conditioning this option, the same rules do apply that you must pay your RRSP back within a 15-year timeline, with a minimum contribution of one 15th of the total amount made each year. If you fail to make your annual contribution, that portion of funds are earmarked as income, and you’ll be taxed on it at your full rate.