Using Your RRSPs For A Down Payment On Your New Home

I have come across a lot of people including my clients who are still unclear about the Registered Retirement Savings Plan (RRSP) for the purpose of buying a home. For those of you who are unaware the Revenue Canada calls this program the Home Buyer’s Plan. Not only is this popular with first-time homebuyers, but in my opinion, it is significantly underused.

RRSPs represent one of the only forms of forced savings – so why not use this method to come up with your new home down payment?

What is the First Time Home Buyer’s Plan?
The First-time Home Buyer's Plan (HBP) is a Federal Government initiative providing Canadian citizens the opportunity to withdraw up to $25,000 from personal RRSPs for buying or building a home in Canada. To qualify, applicants must not have directly, or indirectly, owned a residence within the past five years.

Under the HBP, qualifying withdrawals will not be included in annual income, and RRSP issuers will not withhold income tax from these withdrawn amounts. If you are jointly buying or building a home together with your spouse or other qualifying individual, each of you can withdraw up to $25,000. This means that three people buying together can withdraw up to $75,000 (3 X $25,000) collectively.

Are the Withdrawals Taxed?
Withdrawals that meet all of the Revenue Canada HBP conditions are not included in your income and therefore not taxed in the year they are withdrawn. The money that you withdraw has to have been in RRSPs for a minimum of 90 days before it can be withdrawn without tax liability. Through the program, you have the ability to withdraw the amount all at once or through a series of withdrawals not to exceed $25,000.

To withdraw these funds from your RRSPs, you must first have entered into a written agreement to buy or to build. You will also need to confirm that you will occupy the subject property as your personal residence. (Once you take occupancy there is no minimum period of time you are required to live there.)

When do you repay the amount?
Your commitment to the HBP is to repay the amount withdrawn within a 15 year time period. In each year, you will need to make the minimum contributions to your RRSPs equal to 1/15 of the withdrawn funds until the total amount is repaid. You will receive a HBP Statement of Accounts on your annual Notice of Assessment showing you the total HBP withdrawal, the amount you have repaid to date, your HBP balance, and the amount you should repay the following year. Your repayment starts the second year following your withdrawal, and you may repay any amount in excess of the minimum to reduce payments in later years. If you do not repay this amount, then that figure is added to your income for that year. There is no tax liability personally incurred when you make this payment back to your RRSP (at least not from the HBP).

After you move to your new home and start making payments back to your RRSPs, you have to designate the portion that you would like to go towards your HBP payment. Since your earnings will most likely increase as the years go by, it is important to try and pay back the amount you borrowed as quickly as possible. Not only does it give you the potential to get a higher tax deduction for your RRSP contribution but also allows your RRSP dollars to have more years of tax sheltered growth while in your RRSP.

Please keep in mind this is only an overview and do not substitute it for comprehensive tax and financial advice. If you do need further information you could consult a financial professional or I could refer you to one. A more in-depth review of the program can be found on Revenue Canada’s website – www.crc-arc.gc.ca or by calling 1-800-959-2221.

It has been a busy year in the housing market; make sure you make the right decision. Until next time.

Regards,
Zeenia Kola
Sales Representative with Re/Max Realty Specialists Inc., Brokerage
Email: zeenia@zeeniakola.com
Ph: 905-828-3434
Add: 2691 Credit Valley Rd, #101, Mississauga, L5M 7A1
Website: http://www.zeeniakola.com/
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Energy efficiency for all homes, new and old

A Great Article by the President of the Toronto Real Estate Board, Bill Johnston in Toronto Star.
When it comes to character, you just can't beat the charm of an older home. Newly constructed homes however, come with their own unique assets, one of the most noteworthy of which is energy efficiency.

From the roof to the foundation, a number of innovative building practices often go into constructing today's greenest homes.

Roof shingles for example, are now available in recycled materials. Environmentally friendly spray foam insulation, which can help prevent dampness, keep out pollutants and contribute to structural strength, is even partially made with recycled materials.
Roofs, walls and floors can be insulated as well with special structural panels that consist of two layers of board with insulating foam in between them. The forms that are used to mould a home's poured concrete foundation can now also be found with insulating ability, and barriers that prevent dampness from rising into the foundation can be used at this stage of construction as well. Even exterior cladding is now insulated to offer greater energy efficiency.

If you prefer an older home though, there are many simple ways to make it more energy efficient and environmentally friendly.
Start with an Energy Star programmable thermostat that will save on heating and cooling costs when you're not home. You can take this approach a step further by investing in a new high efficiency furnace or air conditioner. Adding insulation to the attic of your home will offer reduced energy costs for years to come as well.

A tank-less water heater will also save on energy costs by providing only the amount of heated water that you need rather than maintaining it in a cylinder.

Even making minor changes can have an impact, like choosing energy efficient light bulbs - Compact Fluorescent Lamps (CFLs) are good and Light Emitting Diodes (LEDs) are even better.

If you're planning to make cosmetic changes to your home you can do your part for the environment by choosing wood flooring, and even carpet, made with recycled content. Look for low VOC paints and stains as well, which reduce the number of unstable, carbon-containing compounds that enter the air and react with other elements.

In the bathroom, you can keep more money in your pocket by installing low-flow faucets, showerheads and toilets.
Replacing old windows with low-E argon-filled units that have the Energy Star symbol can make a dramatic difference to your home's energy efficiency as well.

Changing your old appliances with new Energy Star machines is also a great way to reduce energy consumption while enhancing the overall appeal of your home.

Beyond enjoying the aesthetics, cost savings and fulfillment associated with helping the environment, you can also consider getting an energy audit to take full advantage of a number of government rebates for energy-saving home improvements.

Regardless of the approach you choose, remember that nothing can substitute for good-old fashioned conservation. Remember that the energy you save today may well be the energy that is needed tomorrow.