Federal Govt’s rrsp Home Buyer’s plan nets this couple a $15,000 tax refund.

Around 20 years ago, the Federal govt introduced the RRSP Home Buyer’s Plan.   The goal was to stimulate a depressed housing market in the early ’90s.   The plan is really quite simple.   First time homebuyers could borrow up to $20,000 from their RRSP to be used towards the purchase of a home.   Buy with a spouse or your common-law spouse and you’ve doubled the amount to $40,000.

There really is no catch.  You simply have to pay it back to your RRSP plan over a 15 year period.   The minimum payment is 1/15th of the amount that you withdrew payable each year.  That’s it.

Today, the plan still exists with a slightly higher limit and more flexibility.   You can now withdraw up to $25,000 per person… still capped at 2 people max per purchase (married or common-law spouse).   You can also participate in the Home Buyer’s plan if you haven’t owned a home in the last 5 years.  This can work to your advantage if you previously owned but sold.  click here for the full guidelines and qualifications.

Depending on your personal situation, you could be entitled to a huge tax refund…. In the example below, Kathy and Sam received a $15,418 tax refund!.

• Kathy and Sam are a young couple in their late 20’s and they are going to buy a home in a few months with a planned February or March closing.
• Kathy earns $75,000 and Sam earns $65,000 per year.
• They haven’t contributed much to their RRSPs in the past 5 years allowing them to carry forward unused contributions to this current year.
• They each have at least $25,000 of contribution room.
• They have $20,000 cash saved up for a down payment.
• We arranged for a short term loan to allow them to borrow $30,000 and contribute to their RRSPs.
• Each of them makes a $25,000 contribution to their RRSP.
• The funds must stay in the RRSP for at least 90 days to qualify for withdrawal under the Home Buyer’s Plan.
• 90 days later (February 14, 2014), they withdraw $50,000 from the RRSPs, pay back the $30,000 loan.   They now have a $50,000 rrsp tax credit and $20,000 in cash.
• a few months later, after filing their Tax Returns, they will receive a tax refund netting them around $15,418 according to the RevCan tax table.
• End result is they now have $35,418 to be used towards the purchase of a new home.

Your tax refund will vary depending on your income tax bracket and how much you can contribute to your RRSP.  This example shows Kathy and Sam getting $15,418 in new funds.  Not bad.  Getting a short term rrsp loan is fairly easy these days.  The higher your income, the bigger the tax refund.

The RRSP Home Buyer’s Plan is one of those no-brainers.  Use it while you can.   Although the program has been around for a while now, it can be pulled at any time.. and with our current Federal govt cutting lending programs and tightening mortgage rules, they could look to cut this program also.   If you’re considering buying your first home, remember to look into this program.

Your best interest is my only interest.

As always, I welcome your comments, calls and questions.

Steve Garganis 416 224 0114 steve@mortgagenow.ca