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I didn't understand the Home Buyers' Plan. What now?

I contributed $25,000 to my registered retirement savings plan for the sole purpose of withdrawing the funds under the Home Buyers' Plan to buy a condo. Later I learned there is a 90-day waiting period for withdrawals. Does that mean I will not be able to use the money for my down payment? Is there any way I can access these RRSP funds?

The Home Buyers Plan is a great tool for first-time home buyers. It allows you to withdraw up to $25,000 tax-free from your RRSP to buy or build a qualifying home, and to repay the money to your RRSP over a period of up to 15 years. However, your predicament underscores why it's important to read the fine print before you make any important financial decision.

The Canada Revenue Agency is very clear on the rules. "Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year," the CRA's website says.

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For example, if you made your RRSP contribution on Sept. 1, you would have to wait until Nov. 29 to withdraw the money, or you would not qualify for an RRSP deduction for the funds. (This is assuming you did not have any other money in the RRSP before you made the $25,000 contribution.)

There may be ways around the problem, however, says Camillo Lento, a chartered accountant and lecturer in accounting at Lakehead University.

For example, you could try to delay your closing date and withdrawal until after the 90-day period has passed. The CRA would then allow you to deduct the $25,000 from your income, potentially creating a tax refund.

You need to be aware of another rule, however. Before applying to withdraw funds under the HBP you must have a written agreement to buy or build a home, with the condition that your final withdrawal under the HBP can be no later than 30 days after the closing date. Any withdrawals after the 30-day period would be included in your income and subject to tax.

Keeping these rules in mind, Mr. Lento suggests another option: You could plan to close your home purchase, say, 62 days after you made the RRSP contribution, using a line of credit to make the down payment. You could then withdraw the $25,000 under the HBP 29 or 30 days later and pay off the line of credit. That way, you would meet both the 90-day and 30-day conditions and qualify for a refund.

"If he hasn't purchased the house yet, he can probably make it work," Mr. Lento says.

If you've already bought the house and it's not an option to delay the closing, you can still access the $25,000 for your down payment by bypassing the HBP and just making a regular withdrawal from your RRSP, he says. In that case, you would be subject to withholding tax on the funds, but you would qualify for a deduction and tax refund. Ultimately, it would be a wash, because the $25,000 RRSP contribution and $25,000 withdrawal would cancel each other out.

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Before you make a decision, I recommend you consult the CRA or a tax professional.

Read more of Globe Investor's 29 Ways in 29 Days to be a better investor

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About the Author
Investment Reporter and Columnist

John Heinzl has been writing about business and investing since 1990. A native of Hamilton, he earned a master's degree from the University of Western Ontario's Graduate School of Journalism and completed the Canadian Securities Course with honours. More

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