RRSP Home Buyer’s Plan and Separation
Effective January 1, 2020, Canadians experiencing a breakdown in their marriage or common-law partnership may qualify to withdraw money from their Registered Retirement Savings Plan (RRSP) to purchase a new home, without incurring a tax penalty.
The Home Buyers’ Plan (HBP) is a program through the Canada Revenue Agency (CRA) that allows eligible first-time homebuyers to withdraw up to $35,000 tax-free from their RRSP. The Federal Government increased the withdrawal limit from $25,000 to $35,000 in the 2019 budget.
If you live separate and apart from your spouse or common-law partner for a period of at least 90 days as the result of a breakdown in your marriage or common-law partnership, generally, you may qualify to participate in the Home Buyers’ Plan even if you do not meet the first-time home buyer requirement.
What are the requirements?
You may qualify for the Homebuyers’ Plan after breakdown of a marriage or common law partnership if the following requirements are met:
- You must have been living separate and apart for at least 90 days due to a marriage or relationship breakdown;
- You must be living separate and apart at the time the withdrawal is made and began to live separate and apart in the year in which the withdrawal is made, or any time in the four preceding years;
- You will be required to dispose of the previous principal place of residence no later than two years after the end of the year in which the HBP withdrawal is made;
- This requirement will be waived if you buy out the share of the residence owned by your spouse or common law partner
- The existing rule that individuals may not acquire the home more than 30 days before making the HBP withdrawal will also be waived in this circumstance.
- In the case where your principal place of residence is a home owned and occupied by a new spouse or common-law partner, you will not be able to make a Homebuyers’ Plan withdrawal under these rules.
What does this mean for Family Law purposes?
This change may have huge benefits for parties going through a marital or common-law relationship breakdown. For many Canadian families, the matrimonial home and RRSPs are two of the biggest assets they own. It is quite common for spouses to use their RRSPs to make an equalization payment or for a spouse to acquire the interest or right of the other spouse in the home that was the matrimonial home.
Spouses experiencing a breakdown in their marriage or common-law partnership now have additional options and should discuss the possible use of the Home Buyers’ Plan (HBP) with their lawyer and financial advisor.