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If you withdraw funds from your rrsp, what is the tax implication if you rent the place for one year? |
If you withdraw funds from your rrsp, what is the tax implication if you rent the place for one year? I assume you mean you plan to withdraw from your RRSP under the Home Buyer's Plan ("HBP") (therefore a tax-free withdrawal with scheduled repayment) in order to buy a property, then rent the property out to tenants. One of the condition for withdrawal under the HBP is that you have to intend to occupy the property as your principal place of residence no later than one year after buying it. Once you occupy the home, there is no minimum period of time that you have to live there. Therefore, you can choose to rent it out for 11 months and then move in to occupy it by the end of the12-month period. An exception is if you are buying the home for a disabled relative. You can find out more information about the HBP at the CRA website: http://www.cra-arc.gc.ca/tax/individuals... If by the end of the 12 month period, you still do not inhabit the property because it is still being rented out. There is a good chance the CRA will disqualify you from the HBP and thus tax the withdrawal as income. Following is an excerpt from a CRA comfort letter, CRA file # 9702795, with respect to the intention to occupy (note the last sentence): "....When a person withdraws funds from an RRSP under the home buyers' program the person must certify that they intend to occupy the qualifying home as their place of residence within one year of acquiring the home. There is no provision for extending this time period. However, there is also no requirement that the home must actually be used as a principal place of residence at any time. Accordingly, if for some reason a property can not be used as a principal place of residence within the required period, the withdrawal will not be disqualified as an eligible withdrawal. However it should be noted that the Department will generally presume a purchaser did not intend to occupy a home as a principal place of residence within one year of its purchase if there are conditions that would prevent such an occupancy of the home within that period of time. This could occur, for example, where the property is acquired but rented to some other person...." Therefore, you are running a real risk of having CRA disqualify you if you rent the property out for the whole year. My recommendation is that you should occupy the place for a short time after you purchase it, and then rent it out. If the CRA questions your intention, you can explain that you originally intended to occupy the property as your principle residence, but then circumstances changed and you have to move out. Where a qualifying home is acquired, and, because of a change in circumstances, is not used as a principal residence, the withdrawal of funds from an RRSP would not be disqualified. Your additional edit regarding not occupying the qualifying home by the end of the 12 months would only apply if you've purchased a qualifying home, and the house wasn't ready (construction delay, for example); there has to be a qualifying home, which you are intending to occupy as your principal residence. |
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