Borrowing From Your Own RRSP: The Home Buyers’ Plan and the Lifelong Learning Plan

There is a particular appeal to the idea of borrowing from yourself. No credit check, no lender, no interest, and the money is already sitting there. Both of these programs are built on that appeal, and both are genuinely useful: they let a household reach a down payment or fund an education without triggering the tax that an ordinary withdrawal would. But the framing hides the part that decides whether they were a good idea. This is not a withdrawal that gets forgiven. It is a withdrawal with a repayment schedule attached, running for ten or fifteen years, and the consequence of missing a payment is not a letter or a fee. The amount that was due simply becomes income that year, and the contribution room it occupied disappears for good. That is a quiet consequence and it accumulates. This article explains both programs, how the repayments actually work, what happens when one is missed, and how to think honestly about what the withdrawal costs.

What the two programs are

The Home Buyers’ Plan allows a withdrawal from a registered retirement savings plan to buy or build a qualifying home, for yourself or for a specified disabled person, without the withdrawal being taxed at the time. Eligibility is built around a first time buyer test, with defined exceptions, and the current withdrawal limit is set by legislation.

The Lifelong Learning Plan allows a withdrawal to finance full time training or education for you or your spouse or common law partner, again without tax at the time. It is not available for a child’s education, which is the most common misunderstanding about it; a registered education savings plan is the vehicle for that.

Neither limit is printed here, and neither are the dates of any temporary measure. The Home Buyers’ Plan limit has been changed by legislation more than once and there has been a temporary deferral of when the repayment period begins for certain withdrawal years. Both are on Canada.ca, both take a minute to check, and both would be wrong on this page within a year.

The repayment, which is the whole substance of it

The Home Buyers’ Plan is repaid over 15 years, and the Lifelong Learning Plan generally over 10. In each case the amount withdrawn is divided across the repayment period, and a portion becomes due for each year of it.

When the period starts is a detail worth checking rather than assuming. There is a lag between the withdrawal and the first repayment year, and a temporary measure has extended that lag for certain Home Buyers’ Plan withdrawal years. The Canada Revenue Agency tells you your own repayment amount and schedule each year in your notice of assessment and in your online account, and that is the number to work from.

A repayment is made by contributing to your RRSP and then designating that contribution as a repayment on your return. Two things follow. It generates no deduction, because the deduction was already taken when the money went in originally. And it must actually be designated: a contribution made in the right amount but claimed as an ordinary deduction is not a repayment, and the consequence below applies as though nothing had been paid.

You can repay more than the required amount in a year, which shortens the remaining schedule. You cannot repay less without consequence, which is the next section.

What happens when a repayment is missed

This is the part that deserves to be understood before the withdrawal rather than after. There is no penalty and no interest. What happens instead is that the amount that was due is included in your income for that year, and taxed at your marginal rate.

That sounds mild and it is not, for two reasons. The first is timing: the year a household is least likely to make a repayment is a year when money is tight, which is exactly the year an unexpected addition to taxable income is least welcome. The second is permanence: the contribution room that the withdrawn money occupied does not come back. A missed repayment converts registered retirement savings into taxable income and closes the door behind it.

Nothing about this is dramatic in one year, and that is what makes it dangerous. Over fifteen years, a household that misses several repayments without noticing has paid tax on money it thought it had borrowed from itself, and has permanently reduced its retirement savings capacity.

The remedy is administrative rather than clever. The required amount for the year is on the notice of assessment. Treating it as a fixed annual obligation, the same way a household treats a loan payment, is the whole discipline, and a monthly automatic contribution sized to the annual requirement is the usual way people who succeed at it do it.

What it actually costs, which is not the tax

Because there is no tax and no interest, these programs are often described as free money. They are not. The cost is the growth the withdrawn amount would have produced inside the plan across the repayment period, and for a person in their thirties that is the largest figure in this article by a wide margin.

It is worth being fair about the other side. A home is not nothing: it is usually the household’s largest asset, ownership has real financial and non financial value, and money that gets a household into a home years earlier may be doing more good than the same money compounding in an account. An education that changes a career has a return that no projection captures. Neither program is a mistake and this page is not arguing that it is.

The honest framing is that the cost is real, it is deferred, and it is invisible at the moment of the decision. A household that has looked at it and decided the home or the education is worth it has made a sound decision. A household that believed there was no cost has not made a decision at all.

The situations that need care

Turning 71 during a repayment period is the first. Contributions to your own plan stop at the end of that year, and any outstanding balance is handled differently after that. It is a specific question for a qualified tax professional, and it arrives with no warning.

Becoming a non resident is the second, since it changes the treatment of the outstanding balance, and again the details belong with a tax professional before the move rather than after it.

Death while a balance is outstanding is the third: the outstanding amount is generally brought into income in the year of death, with an election available to a surviving spouse or common law partner in defined circumstances. It is worth knowing about because it belongs in an estate conversation and almost never appears in one.

And using both programs at once is possible but demands attention, because two schedules of different lengths run in parallel and each has its own annual requirement. Two obligations tracked as one is how a repayment gets missed.

Where a tax free savings account fits alongside

For a first home, a household now has more than one route, and the choice between them is worth a conversation rather than a default.

The Home Buyers’ Plan gives access to money already accumulated in a registered retirement plan, at the cost of a long repayment obligation. A tax free savings account gives access to money without any repayment obligation at all, and the room comes back in the following year, though the contributions were made with after tax dollars in the first place. There is also a registered account designed specifically for first homes, which this site covers separately and which changes the analysis for anyone eligible for it.

The right combination depends on which accounts a household actually has, its tax rate now and later, and how soon the purchase is. That is a calculation on real numbers with a qualified tax professional, not a rule that can be written in advance.

What has to be true before the money comes out

Both programs attach conditions to the withdrawal itself, and those are the part people meet late, once the exciting decision is already made.

The first is a holding period. A contribution has to remain in the plan for a minimum time before it is withdrawn under either program, and the Canada Revenue Agency sets and publishes that period. Contributing a lump sum and withdrawing it immediately can cost the deduction on it entirely. Anyone planning to top up a plan in order to withdraw needs the current rule before contributing.

The second is the form. The withdrawal is requested from the institution holding the plan on a prescribed form, and that form is what makes it a program withdrawal rather than an ordinary taxable one. Money taken out without it is income.

The third is timing at both ends. There is a window in which several withdrawals can be made and counted together, and a deadline by which the home must be acquired or the enrolment must be in place. You must also be resident in Canada. All of it is on the Agency’s own pages and all of it has moved before.

Two people buying one home

Each spouse or common law partner has their own plan and their own eligibility, and each can withdraw under the Home Buyers’ Plan for the same qualifying home. That doubles what can be withdrawn and it doubles the repayment obligation. Households notice the first half of that sentence.

There is a point here worth real money that is almost never raised. Money contributed to a spousal plan is normally subject to an attribution rule: withdraw it too soon after a contribution and the amount is taxed back to the contributing spouse. A withdrawal under the Home Buyers’ Plan is treated differently, so a spousal plan can often be used for a first home without that result. The rest of the rules are in the article on spousal RRSPs.

Whichever spouse withdraws is the spouse who repays. Two schedules under one roof are two obligations, with two annual amounts on two notices of assessment, and a household tracking one number for the pair will miss one. Confirm the eligibility and the attribution treatment with a qualified tax professional first, because the order of the steps cannot be corrected afterwards.

Frequently Asked Questions

Continue Learning

Read The FHSA for the account designed specifically for a first home, RRSP Contribution Room for how repayments interact with your limit, and The RESP for the vehicle built for a child’s education. The Wealth Creation guide sets out the whole picture.