Borrowing from Your RRSP: HBP and LLP – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Your RRSP is one of the most powerful retirement tools in Canada—but it can also be used strategically during your lifetime through two special programs: the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP). These programs allow you to withdraw RRSP funds tax-free today, as long as you repay the amount later. Used properly, they can help first-time homebuyers enter the real estate market or allow adults to return to school without financial strain. Used improperly, they can result in unexpected tax bills and long-term retirement setbacks. This guide explains everything you need to know about borrowing from your RRSP safely and strategically.

Legal and Regulatory Framework

RRSP withdrawals are normally fully taxable. However, the HBP and LLP are governed by special rules under the Income Tax Act allowing temporary tax-free withdrawals, provided that repayment schedules are followed. CRA closely monitors these programs and requires strict documentation, eligibility criteria, and annual repayments. Failure to comply results in RRSP withdrawals being added back to taxable income.

Key Court Decisions

In Elliott v. Canada, improper HBP withdrawals led to reassessment because the taxpayer failed to meet eligibility rules. In Miller v. Canada, a taxpayer was denied LLP treatment due to insufficient proof of enrollment. In Robertson v. Canada, missed HBP repayments were added back to income. These cases show how important proper documentation and repayment compliance are.

How the Home Buyers’ Plan (HBP) Works

The HBP allows first-time homebuyers to withdraw up to $35,000 from their RRSP tax-free to purchase or build a qualifying home. Couples can withdraw up to $70,000 combined. Requirements include: being a first-time homebuyer (or not owning a home in the past four years), having a written agreement to purchase or build a home, occupying the home as a principal residence within one year, and repaying the amount over 15 years beginning the second year after withdrawal. Annual repayments must be made to your RRSP; missed payments are added to income.

How the Lifelong Learning Plan (LLP) Works

The LLP allows adults to withdraw up to $10,000 per year, to a maximum of $20,000, to finance full-time training or education for themselves or their spouse. Requirements include: enrollment in a qualifying program, annual school verification, and repayment over a 10-year period beginning in the fifth year after the first withdrawal or the year you stop being a qualifying student. Missed repayments are added to taxable income.

Repayment Rules

HBP: 15-year repayment schedule, minimum annual repayment = total withdrawal ÷ 15.
LLP: 10-year repayment schedule, minimum annual repayment = total LLP withdrawal ÷ 10.
CRA tracks remaining balances through your annual Notice of Assessment. Repayments must be designated properly or they will not count toward repayment.

Common Mistakes and CRA Issues

Many Canadians run into problems when they: withdraw funds without proper supporting documents, fail to meet first-time homebuyer criteria, do not move into the home on time, forget to make annual repayments, misreport repayments incorrectly, use RRSP withdrawals for non-qualifying programs under LLP, or fail to provide enrollment documents to CRA. These mistakes often lead to inclusion of RRSP withdrawals in taxable income.

Tax Planning Strategies with RRSP Borrowing

Borrowing from your RRSP can be strategic when: you expect higher future income (repayments rebuild RRSP room), you want to avoid high-interest borrowing for school, you need to boost your home down payment, or you coordinate RRSP contributions and HBP withdrawals to maximize refunds. A popular strategy is to contribute to your RRSP shortly before HBP withdrawal to generate a tax deduction, then withdraw under the HBP—creating a tax refund that can also be used toward the home purchase.

Impact on Retirement Planning

Withdrawing from your RRSP reduces your compounding investment growth. Missing repayments permanently reduces your RRSP value. Small shortfalls today can result in large retirement deficits. Proper planning is essential to minimize damage to long-term savings.

Who Should Avoid Borrowing from RRSPs

RRSP withdrawals may be risky if: your budget cannot sustain repayments, you anticipate income instability, you lack contribution room to rebuild savings, or you already have insufficient retirement savings. Alternative financing—such as TFSA withdrawals or lower-interest loans—may be more appropriate.

Mackisen Strategy

At Mackisen CPA Montreal, we help clients determine whether HBP or LLP withdrawals make financial sense. We calculate repayment schedules, analyze tax impact, prepare RRSP contribution strategies, ensure CRA compliance, coordinate documentation with financial institutions, and build long-term retirement plans that integrate HBP or LLP borrowing without jeopardizing future savings.

Real Client Experience

A Montreal first-time buyer maximized their down payment by combining an RRSP contribution strategy with the HBP—saving thousands in tax. An adult returning to school used the LLP and avoided taking on high-interest debt. A couple facing CRA reassessment on HBP withdrawals avoided penalties after we corrected repayment designations and provided proper documentation.

Common Questions

Do RRSP repayments create new contribution room? No. Can I use HBP twice? Yes—if certain conditions are met. Can I use LLP for my child? No—only for yourself or your spouse. What happens if I cannot repay? Missed payments become taxable income.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures RRSP borrowing strategies are executed properly, tax-efficiently, and aligned with your long-term financial goals. We protect you from reassessment and help you maximize both your education and homeownership opportunities.