# Using the First Time Home Buyers plan to pay of LOC



## zildjian4 (Sep 16, 2015)

Hello everyone, 

I signed a purchase agreement on a condo this week.

Purchase price: 194,400
Deposit: 12,500(5k was given to me by my parents for the initial deposit)
Total Money in RRSP: 17,000

So, I will be taking 7,500 out of my RRSP to pay for the next and final deposit. I will also be taking the remaining 9,500 out and putting it in a TFSA until next May(because it all has to be taken out in a calendar year) when I close to buy furniture, pay closing costs etc.

I am wondering if I can also use a portion of that 9,500 to pay of a small LOC?

Thanks!


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## MRT (Apr 8, 2013)

yes - you can do whatever you want with the money withdrawn under the HBP. 

it is a common misconception that the funds must be used for down payment, closing costs, or anything else related to the purchase transaction or property.


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## zildjian4 (Sep 16, 2015)

Thanks for the reply! Do you have any sources to back that up? I just want to be certain before I go ahead and do it. Are receipts submitted at income tax time or..?


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## MRT (Apr 8, 2013)

zildjian4 said:


> Thanks for the reply! Do you have any sources to back that up? I just want to be certain before I go ahead and do it. Are receipts submitted at income tax time or..?


just my 10 years in the biz (but I left several years ago) and personal experience of doing the same (I used part of an HBP withdrawal to pay off a small PLC balance)...but you can check with CRA, or your mortgage lender, realtor, or lawyer should all be able to confirm this too. 

All I could find with a quick search online was from http://www.taxtips.ca/rrsp/homebuyersplan.htm :

"The Income Tax Act does not specify that the funds withdrawn must be used to pay for the house that is being built... If all conditions to participate in the HBP are satisfied, the funds can be used for any purpose."

You don't submit receipts for anything at tax time as your financial institution submits something to CRA regarding the withdrawal, I believe...and certainly not for anything related to the use of the funds; however, CRA can audit your participation in HBP, so keep a paper trail on file. I was asked about 1-2 years later to submit confirmation of the purchase transaction, the RSP withdrawal, that the funds had resided in the RSP for the minimum 90 days prior, etc.

The onus is entirely on you to ensure that you qualify as a 1st time home buyer. In the event of an audit, if you did not actually qualify as a 1st time home buyer, or you can't produce the required paperwork to confirm everything was done properly, your tax return will be reassessed and the RSP withdrawal will be added to your income for that year, leaving you with an income tax balance owing.


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## dougboswell (Oct 25, 2010)

I think that you need to verify this with CRA. http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html
This link to CRa is very specific that it must be used to buy or build a qualifying home for yourself or a person with a disability


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## MRT (Apr 8, 2013)

CRA is not going to tell you that you can use the HBP money on hookers and drugs; however, CRA's wording also does not imply that you must use the funds ONLY for down payment and closing costs. 

if CRA were fixated on this, you would see qualifiers in their wording such as 'withdraw up to 25k (or 50k per couple) *OR* the total of your down payment and closing costs, WHICHEVER IS LESS', and there is no such qualification on the use of the funds. 

you would also either see required reporting on the use of funds on your tax return, either as a declaration or with actual receipts, or (at the very least) accounting for use of funds would form part of their audit process (and neither is the case - I was audited for my HBP plan participation and there is NO concern/questions regarding the use of funds). 

You could also easily make the case that paying down debt was a part of the purchase process, if required to qualify. Plus, it frees up cash flow to allow you to better service your mortgage and related shelter costs, so it is arguably a responsible move.

zildjian4...pay down your debt with confidence. unsecured debts costs more to service on a monthly basis then the equivalent amount put on your mortgage adds to your payment. Better yet, to avoid amortizing those funds over a long period of time, pay off your debt now with surplus HBP funds, and then increase your mortgage payment, given your resulting higher cash flow. win/win.


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