A Registered Retirement Savings Plan (RRSP) is an example of a tax-deferred savings plan that is intended to provide you with a source of income at retirement. You receive immediate tax benefits on your contributions since they are tax deductible on your personal income tax return, and money within the plan grows tax-free.
While you can withdraw money from your RRSP tax free to buy a home, there are certain limits and conditions. The government’s Home Buyer’s Plan allows you to borrow up to $25,000 for your first home, as long as you pay it back over the next 15 years. Learn more about withdrawing money from your RRSP before you retire.
Any funds taken from an RRSP that don’t meet the conditions of the Home Buyer’s Plan are fully taxable as income in the year you withdraw them. At the time of withdrawal, you will immediately pay a withholding tax. The withholding tax is between 10% and 30%, depending on how much you withdraw (in all provinces except Quebec). You will also have to report the full amount as income in your personal tax return in the year you withdraw it but will receive a credit for the withholding tax paid. Depending on how much you’ve withdrawn, you may need to pay more. The Canada Revenue Agency (CRA) has information on tax rates on withdrawals.
Speak to a qualified tax professional to receive clarification on your own situation.