First Time Home Buyers Enhancement Strategy
Smart RRSP Strategy for First-Time Home Buyers (and a Bonus Tool You Need to Know About!)
Buying your first home in Canada is a big deal - and for many, figuring out how to pull together a down payment is the first challenge. If you’ve already saved up your down payment and still have unused RRSP contribution room, this little-known strategy could put extra money in your pocket *without* needing to change your home-buying plans.
First, a Quick Refresher on the Home Buyers' Plan (HBP):
The HBP lets first-time home buyers withdraw up to $60,000 (as of 2024) from their RRSP to use as a down payment. You don’t pay tax on this withdrawal, but you do have to repay it over 15 years. You’re considered a first-time buyer if you haven’t owned a home in the past four years (yes, they shortened it).
Now for the Smart Move:
Let’s say you already saved $20,000 in a non-registered/TFSA/bank account for your down payment. If you or your partner have RRSP contribution room, you can temporarily shift that $20,000 into an RRSP to trigger a tax refund *before* buying the home.
Here’s how it works:
- Move the $20,000 into the RRSP of the partner with the higher income (they’ll get the biggest refund).
- Choose a low-risk investment like a 90-day GIC or money market fund (no fees—this matters!).
- Leave the funds there for at least 90 days so it qualifies for the HBP.
- Withdraw it under the HBP to use for the down payment before your home closes.
- Enjoy your tax refund (which could be $6,000–$8,000 depending on your income). You can use that refund for renovations, closing costs, or start repaying the HBP right away.
A Real-World Example:
Let’s say Alex and Priya are buying a $500,000 home. They’ve saved $25,000 and Alex has $30,000 in unused RRSP room. He earns $90,000/year and is in a 38% marginal tax bracket. If Alex moves $25,000 into his RRSP and then uses it for the HBP, he’ll get a tax refund of roughly $9,500. That’s money they wouldn’t have had otherwise.
This strategy works best when:
- You’ve already saved your down payment.
- You have RRSP contribution room.
- One of you is in a higher tax bracket.
- You still qualify under the HBP rules.
The Bottom Line:
By using this strategy, Alex and Priya turn their $25,000 savings into a $34,500 advantage - simply by routing their money through an RRSP and taking advantage of current tax rules.
Bonus Tip: Don’t Forget the FHSA
The First Home Savings Account (FHSA) is a new tax-free way to save for your first home, introduced in 2023. You can contribute up to $8,000 per year (lifetime max of $40,000), and like an RRSP, your contributions are tax-deductible. But here’s the kicker: withdrawals (including growth) are tax-free if used to buy your first home.
So if you’re planning ahead - or even thinking about a home purchase in a few years - the FHSA should be part of your strategy. Even better: you can combine the FHSA and the HBP for maximum effect.
Want to know if this strategy is right for you? Let’s chat:
(226) 440-6453 www.BrewittFinancial.com