Canadians may be frustrated in their efforts to gather information on how they can remove as much as $20,000 from their RRSPs without any penalties. The federal government offers a variety of RRSP-withdrawal programs from Lifelong Learning to the Home Buyers' Plan, but getting the details straight can be challenging. An email from one Ontario couple illustrates the problem:

"Our RRSPs were purchased through the bank and neither TD nor B.of.M. seem to be aware of a disabled person/spouse or relative being able to withdraw RRSPs ($20,000 each) to build a barrier-free home under the HBP [Home Buyers' Plan], with the withdrawal not considered taxable income and RRSPs remaining intact," explained the writer we'll call "Janet," age 65, describing the changing housing needs of her husband, Bill.

"We have owned our 2-storey home for 33 years, but it is becoming increasingly difficult to manage. We're in the process of building a barrier free bungalow for easier access as my husband's degenerative muscle disease requires him to wear leg braces and this will progress to require a wheelchair/scooter etc. Completion of our barrier free bungalow should be [achieved] within the next two months...Total cost of the new residence will certainly exceed the selling price of our present home.

"Please direct us to a source of information re withdrawal of $40,000 so that we may quickly access these funds and learn about repayment schedules."

Dear Janet:

To learn whether you and your husband qualify for the disability provisions of the Home Buyers' Plan (HBP), contact the Canada Customs and Revenue Agency (CCRA), which oversees the HBP and Registered Retirement Savings Plans (RRSPs) .

Although you'll have to check with CCRA to be sure, you both appear to meet HBP requirements for applying to withdraw RRSP funds without penalty, namely:

• You have already entered into a written agreement to build a qualifying home.

• The new home will be your principal residence.

• Your HBP balance as of January 1 is zero because you have not used the HBP before.

• Under HBP disability guidelines you don't have to be first-time buyers, but one of the following situations must apply:
  • Either, your husband was entitled to the disability deduction on his tax return for the year before the HBP withdrawal and still continues to meet eligibility requirements; or

  • A Form T2201 (Disability Tax Credit Certificate), certified by an appropriate medical doctor, must be filed for your husband for the year of the HBP withdrawal.

Details matter when dealing with CCRA. The following conditions must be met when an RRSP withdrawal is made:

1. You must complete Form T1036, Request to Withdraw Funds from an RRSP.

2. Neither you nor your husband can own the qualifying home more than 30 days before a withdrawal is made.

3. Since each of you will make a withdrawal you must both be residents of Canada, under the Income Tax Act.

4. You must receive all withdrawals this year and may not withdraw more than $20,000 each (your RRSP issuer will not withhold tax on these amounts). Any extra dollars withdrawn will be considered taxable income for this year and may not be repaid to the RRSP.

After all your withdrawals have been made, you must build your barrier-free home before October 1 of the year after the year of withdrawal, which gives you until October 1, 2002.

Your HBP repayment periods start the second year following the year you make your withdrawals. These RRSP contributions may be made during the year the repayment is due or in the first 60 days of the following year.

Normally you would both have 15 years to repay to your RRSPs, annually contributing 1/15 of your original HBP balances to your RRSPs until the full amount is repaid. However, at age 69, everything changes.

After the end of the year your husband -- now 67-- turns 69, he will not be able to repay his HBP withdrawals because he cannot contribute to an RRSP after the end of the year in which he turns 69. That year, he can choose to repay all or part of the HBP balance into his RRSPs.

If your husband does not repay the entire HBP balance, each year the amount that would have been his annual repayment must be included as taxable income. There is no other penalty. When you turn 69, the same rules apply. Talk to your financial advisor to decide whether you should take the tax hit each year or repay the RRSPs.

CCRA suggests the RRSP issuer, in your case one of your banks, should be a good source of information on HBP, however, you may decide to gather details directly from the local CCRA office or the CCRA site. Your tax advisor should also be knowledgeable on the subject.

According to CCRA, if you do not do everything properly, you will not qualify for the HBP and any RRSP withdrawals will become taxable income and you will lose the RRSP room, so take the time to get the details straight.

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Note from CCRA: Visually impaired persons can get information on services available to them, and can order publications in braille or large print, or on audio cassette or computer diskette, by calling 1-800-267-1267 weekdays from 8:15 a.m. to 5:00 p.m. (Eastern Time).

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For more articles by P.J. Wade, please press here.

Published: June 20, 2001

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