FIRST TIME BUYERS GET $11,000 Per Person~*
*** ADVICE from a Certified Financial Planner or an Accountant is STRONGLY Suggested ***
We have all heard about RRSP’s and First Time Home Buyer’s Plan, but it seems a lot of people don't understand how effectively this combination works. So, in this article I am going to show you the benefits of using your RRSP’s and how much you can get back from the government. You will be making a huge mistake if you don't consider the advantages of using your RRSP's to purchase your first home in Canada. Unless you’re a new resident in Canada and don’t have any RRSP room, then you're about to learn how these plans can work in your favour. Basically, the Government gives you a free loan of up to $11,000 per person (or as a couple you can get $22,000) to purchase your first home. There are some restrictions and guidelines to follow but nothing too drastic.
The first thing you need to understand about RRSP’s is, it is a Registered Retirement Saving Plan whose main purpose is for Canadians to save for their retirement. For every dollar you contribute towards this plan, the government will give you a tax refund. They do this to encourage you to save more for your retirement. The amount of tax rebate you receive all depends on your current annual income. The higher your income, the higher the rebate you will receive. You must always make certain that you have the available room before contributing towards this plan, as there are yearly maximum limits. Going beyond these limits will result in some steep penalties. Always check your Notice of Assessment to figure out your contribution margin. Within the RRSP plan, the government launched a First Time Home Buyer's Plan and a Life Long Learning plan. I am about to help you discover the benefits of using the
First Time Home Buyer's plan and why you should be using it to purchase your first home.
Let’s assume you have $25,000 cash per person, or combined as a couple you may have $50,000 cash. By 'Cash' I mean money sitting freely in a chequing, savings or any other form of Non-Registered money. Now, as I stated above, your Rebate will depend on your Annual Income. Don’t be discouraged if you have a smaller down payment; there are strategies you can implement to increase your down payment and I will be discussing them in the second part of this article. I am going to show you an example of different Income levels for residents of Ontario for the tax year of 2015. So, depending on your spouse and your income, the following table shows you the tax rebate you will receive if you contribute $25,000 towards your RRSP plan. For example, if you make $40,000 annually and your spouse makes $60,000 then you will get a refund of $5,209 and $6,865 respectively. Which is a total of $12,074 extra combined
as a couple! It’s always wiser to maximize the higher earning spouse's RRSP in order to get a bigger refund from the government.
|Annual Income||Tax Rebate Per Person|
As the example above illustrates, if you have $25,000 cash that you’re using to purchase your first home, you may want to reconsider your strategy. By first depositing the money into your RRSP for only 90 days, you can get up to $11,000 per person or better yet $22,000 as a couple, depending on your income. If you can get the government to help you purchase your first home by giving you some extra money right away, then why not take advantage of it?
As previously stated, there are some restrictions and guidelines to follow. The main one is, you will have a 17-year period to put this money back into your RRSP’s. Let me explain how that works, you will get a grace period of 2 years after you've purchased your home, during which time you won’t need to put anything back into your RRSP’s. After that, however, you are obligated to put back a minimum of $1,667 per year or $139/ monthly into your own RRSP’s. The formula is calculated by the amount of money you took out of your RRSP’s divided by 15. This means you will need to put the total amount back into your own Retirement Savings Plan within the 15 years after your grace period. If you took out less than $25,000, then your payments will also be less on an annual basis. If for any reason you are unable to put this money back into your RRSP’s, then the annual payback amount will be included as part of your
taxable income. Depending on your income for that year, you would have to pay tax on this money as if it was income earned during that year. For instance, if you have an income of $60,000 and didn’t pay back your homebuyers plan, your taxable income for the year will be $61,667, an addition of $1,667 on your income. If for any reason you didn’t work in a given year and didn’t contribute anything towards your RRSP’s, your income for the year will be $1,667. Technically, you won’t have to pay any taxes on this money because of your low income. Before implementing this strategy, I strongly advise you to consult a qualified financial planner or accountant. Not everyone is qualified for this strategy and there are a few more restrictions and rules you need to be aware of. As I've done for so many others in the past, I would like to help you succeed in taking advantage of these benefits and carefully guide you
through the whole process in full detail.
~* This article has been written by Manoj Kukreja CFP