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F I R S T   T I M E   B U Y E R

CREATING A DOWNPAYMENT USING THE RRSP PROGRAM

Purchaser Requirements

  1. Must be first-time buyers. (As per C.M.H.C. definition.)
  2. Must have made little or no RRSP contributions since 1991.
  3. Must have earned adequate taxable income in that same period.

RRSP Home Buyers Plan (What is it?)

  1. First time buyers may withdraw up to $20,000 maximum per person on a tax free basis from their RRSP.
  2. Taxpayers may contribute to their own or their spouses RRSP, wait 90 days, withdraw the funds and make a considerable tax savings which they can use as a downpayment.

Q. What if I don't have an RRSP or not enough savings to make a contribution?

A. Obtain a loan to make your maximum affordable contribution in order to generate a refund.

Steps To Obtain Tax-Refund To Use As Downpayment

1. Determine your maximum RRSP contribution.
    -limit appears on previous years income tax assessment.
     T451(E)
    -contact your local Revenue Canada office.
    -contact T.I.P.S. "Tax Information Phone Service" 669-9899
    -require: 1) SIN#
                   2) birthdate
                   3) Line 150 of previous years tax return

2. Do a trail tax return.
    -lender will require a letter of comfort. (ie. H&R Block
     $40-$50)

3. Arrange a temporary loan for 90 days to 1 year for amount you want to contribute to your RRSP.  This will reduce your taxable income.
    -it is possible to arrange a loan having interest only payments.

4. Deposit the money from the loan into an RRSP with that lender.

5. File your tax return as soon as possible in the new year.
    -using E. File you can get your refund money in 10-21 days for downpayment.

6. After a minimum of 90 days, withdraw the money from your RRSP under the Home Buyers Program.
    -use from T-1036
    -you must have an accepted offer on a home purchase at that time.

7. Use all the money to repay the RRSP loan.

How do I repay my RRSP Funds?

1. Equal annual installments over 15 years.

2. first payment is due 60 days after the end of the second full calendar year following the year the deduction was made.
    - ie. 1997 withdrawal ----> 1st payment Feb 29, 2000

3. no interest is payable.

4. Funds may be repaid more quickly if desired.

5. Revenue Canada sends payment amount verification to the client every year to inform them how much their payment must   be.

6. If 1/15 is not repaid in any year, the unpaid portion is added to income and taxed at their marginal tax-rate.

Example

- Client earns $30,000 year in gross income.  They pay taxes of approx. $6,500
-If client is eligible and makes a $20,000 RRSP contribution with a 90 day loan, their taxable income is reduced to $10,000.  Therefore, they only pay taxes of approx. $1,000.
-They receive a tax refund of approx. $5,500!!!
-If their spouse qualifies and does the same, they can receive a refund of $11,000!!!

In Addition

1. Funds withdrawn from RRSPs are not monitored.  Therefore, providing you qualify as a buyer, and buy a qualifying home, you can do whatever you like with the tax-refunded money!
    -payoff credit cards; payoff loans; use for legal fees

2. Added Benefits
    -G.S.T. credit increase
    -Medical expense increase
    -Increase in child-tax benefits

Looking for more information?

Contact Dennis Fung at 604-585-4343