Home Buyer's Plan - spousal RRSP account withdrawals

QUESTION:

My wife quit drawing a pay cheque a few years ago to raise our two children. Because I will have an indexed pension when I retire (in about 20 years), I have been making bi-weekly contributions to a spousal RRSP (mutual funds) in my wife’s name.

We currently have a mortgage on our house that is a very good rate however the term will expire in 2 years. In light of the poor performance, of late, of our RRSP mutual funds and the probability of having to renew our mortgage at a much higher rate in two years, we are considering withdrawing some of my wife’s RRSPs to pay down our mortgage. 

My wife has some RRSPs that she purchased a few years ago when she working as well as the ones I have purchased in her name as spousal.

I have recently been transferred with work and we sold our home and purchased a new house in a different town. We are porting our mortgage to the new house. In the past we have both used the first time home buyers plan (to withdraw RRSPs for down payments), myself 17 years ago to buy my first house and my wife, 5 years ago to buy our first house. Do you know if this plan is still available and could we use it in our situation to reduce our mortgage?

If this is not the case, are we able to withdraw RRSPs in my wife’s name in the same year that I am making spousal RRSP contributions? What would be the optimum amount of withdrawal (with the least amount of tax) per year given, that she currently has little personal income. What would the tax hold back be on her withdrawal and does it change depending on her situation?

Please let me know what you think and where I might look to find out more information on this.

Your help is greatly appreciated

Sincerely,

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david ingram replies:

To qualify for a first time Home Buyers withdrawal from an RRSP, you can NOT have owned a house you lived in for five years before the withdrawal. Obviously, that does not work for you.

Any Spousal RRSP withdrawals within 3 years of the date of deposit are taxed to the spouse who contributed the money (you) at 'your' highest marginal tax rate.

Your wife could take up to $35,000 out of her own RRSP at a tax rate of 23%. The withholding would be different but when the tax return is done at the end of the year, her tax rate would be about 23%.

Of course, if she just took out about $9,000, she woul dnot pay any tax and would get a refund any tax (uusally 10% on amounts of $5,000 and less) withheld but you would then lose her as an exemption at the same 23%.

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