Funneling Downpayment Funds Through RRSP for Home Buyers Plan

[Prairie Moustache]

Hello Canadian MMM'ers,

My partner and I are purchasing a home soon and I thought of an opportunity to pass the funds that my SO has saved for a downpayment through her RRSP (which she has not contributed to as of yet, she has a DBP). We would then use form T1213 so that her tax withholdings could be reduced at source and pay back the ~$18k over the 15 years into her RRSP. The CRA does however say that funds must be in the RRSP for 90 days or the contribution may not be tax deductible. We would need the funds earlier than 90 days. Does anyone have experience with this? The "may" clause makes me wonder.

[ricelife]

no experience with this but technically you are trying to use the RRSP as a flow through account. If you don't keep the money in there at least 90 days it's going to be a problem. Bank will probably also give you a hard time - cuz you will be putting the money in and taking it out very soon.

[CathMsMustache]

Hi, I'm new on the forum, but I have some information on this subject that might be useful.
I used the HBP program when I bought my house in 2014.  The extra $$ tipped my down payment over 20% so I did not have to purchase high ratio mortgage insurance.  I'm more than half way through paying back the HBP with minimum amounts each year.  It was a good decision.
The 90-day rule is imposed by the government, not the bank, and the bank has no choice but to comply.
However, it's still your SO's money, and he/she/they is/are entitled to withdraw funds from the RRSP account even if it's less than 90 days.  The drawdown will unshelter the money immediately and it automatically becomes taxable income.  There is another part to the rule that obliges the bank to send income tax to the government as part of the withdrawal of the funds from the RSP.  The bank sends the income tax fee the government as part of the transaction.  The tax rates are here --
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/making-withdrawals/tax-rates-on-withdrawals.html
-- a minimum 10% on 5K to 15K, and goes up from there.  You'd need to allow for (add) this tax payment in whatever the drawdown amount your SO would be looking for.
The income tax payment is kind of ugh, but depending on the amount you'd save on the mortgage insurance, it might be worth it.  You'd also want to ponder lost RSP interest income over the 15-year repayment period.

[Prairie Moustache]

Thanks for the reply - we bought our house back in September so it's all said and done, but I think if someone had a downpayment sitting in a HISA and was forward thinking enough to funnel it through their RRSP to get a hefty refund before closing it could be a helpful thing to do. Assuming you'll be contributing back to your RRSP anyways. Then let that refund sit in the market for longer instead of banking on refunds later.

[CathMsMustache]

Congratulations on the house.  I hope you're enjoying it.
I agree that going through the Home Buyer's Plan is a great idea.  I have always tried to put RSP contributions ahead of everything else, for tax reasons, and those funds came in handy when my home purchase happened.

[Lews Therin]

no experience with this but technically you are trying to use the RRSP as a flow through account. If you don't keep the money in there at least 90 days it's going to be a problem. Bank will probably also give you a hard time - cuz you will be putting the money in and taking it out very soon.

I didn't see this till now, but for the next person that sees this, there are many examples available of references that specify that the 90 day rule is obligatory. It specifically includes HBP, LLP as examples that require the money be placed for 90 days.