In this context of real estate overheating and the housing crisis, the first buyers are particularly courted in this electoral campaign. However, by wanting to push too hard as the Liberals and Conservatives have done, we forget that the current disorder in the residential market is fueled by strong demand colliding with limited supply.
The Liberal Housing Plan announced Tuesday revolves around 17 major measures targeting access to property, the construction of housing and the establishment of a charter of buyers’ rights in order, in particular, to stem the effects of speculation. The Liberals thus became the last of the major parties to unveil its housing strategy, in an operation to seduce young adults.
The duty proposed Tuesday an overview of the major real estate themes retained by the parties. The liberal proposal broadly incorporates certain aspects of that of the Conservatives, such as increasing the number of homes, making mortgages more accessible, transforming offices into homes and, above all, prohibiting the purchase of real estate by foreign investors for two years. . We can also find the commitment of the New Democratic Party to ban excessive rent increases, nicknamed “renovations”, we can read.
A centerpiece of the Liberal plan is the creation of a first-time homebuyer’s savings account to help Canadians under 40 save up to $ 40,000 as a down payment. purchase of a first property, without being taxed or having the obligation to repay the sum. “This will allow young Canadians to set aside 100% of every dollar they earn, up to a maximum of $ 40,000, for the biggest investment they will make in their lives, tax-free up front and tax-free.” on arrival ”, we read.
An approach that some qualify as elitist, favoring the highest incomes and likely to exert upward pressure on prices. Especially since the current real estate frenzy is the result of an exaltation exacerbated by the pandemic and that it shows a strongly surplus demand. An approach which, moreover, will force trade-offs between tax accounts such as RRSPs, TFSAs and study savings plans, to the great benefit of tax experts, analysts say.
The good old RAP
So there will always be that good old Home Buyers’ Plan (HBP), which allows taxpayers to withdraw up to $ 35,000 from their RRSP tax-free to support the purchase of a property. If they have a spouse, they can also withdraw $ 35,000 from their own RRSP, for a combined aggregate amount of $ 70,000. This is about buyers of a first home, which will become the main residence at the latest in the year following the acquisition. There is no limit to the number of times the HBP can be used. But, before doing it again, the first loan must be repaid and the other HBP eligibility conditions must be met.
We are talking here about an RRSP loan. Withdrawals must be repaid annually to the plan over a period of 15 years.
This applies to already accumulated capital. Depending on the credit quality and the leeway in terms of RRSP contributions, financial institutions do not hesitate to offer HBP loans. The loan is sent to the RRSP and then reimbursed to the institution as part of an HBP withdrawal, with the tax refund resulting from the contribution going to the down payment.
It is often said that “HBP” is not beneficial if income is set to grow, with the plan holder losing a tax deduction on higher income in the future. In addition, drawing on your RRSP has an impact on retirement capital, if only by losing the capitalization of tax-sheltered investment income. However, one could oppose this reluctance with the argument that the residence offers a return potentially greater than the cost of borrowing, even more if we consider the leverage effect, than the capital gain on a principal residence. is not taxed, and that preferring an immediate tax refund rather than distant – even higher – is an idea which is defended.
For the HBP loan formula, and since your RRSP must be repaid over 15 years, we could retain that the HBP has the effect of discounting tax refunds in respect of contributions that would be made over 15 years. Moreover, the HBP here becomes compulsory retirement savings.
Finally, there is unanimity in favor of flexibility with regard to funds withdrawn from an RRSP for the purposes of a HBP. Because there is no follow-up. At most, one must qualify and own the property within the prescribed time frame. There is therefore no link between the down payment and the amount of the withdrawal. No constraint on the use of the sums withdrawn.
Then, involving the workers’ type tax funds, with an additional tax deduction, is an avenue to look at.
Watch video
–
