Financing your House purchase with the Home Buyers Plan

HBP

The Home Buyers Plan is a program which allows taxpayers to withdraw funds from an RRSP on a tax free basis towards the purchase of a house. The maximum amount at present is $20,000.00 and must be repaid to the RRSP, starting in the second year after withdrawal. Repayments may be made over a 15 year period but can be repaid earlier. The repayment is not tax deductible, but will be taxed if not repaid. Contributions to the RRSP will be reduced by the amount of the repayment, if so designated , thus lessening the tax deductible portion of the contribution. If no designation is made, then the repayable portion is added to income and taxed at the taxpayer's marginal tax rate.

If the contribution is equal to or exceeds the amount repayable there is no difference to the bottom line, since either the tax deductible portion of the RRSP contributions decreases or the taxable income increases by the amount of the repayment.

The HBP can be very effective in wealth creation strategies. Not only does it allow you to transfer money on a tax-free from your RRSP, but it also allows you to invest in an appreciable product.

Lifelong Learning Plan (LLP)

Under the lifelong learning plan a taxpayer can withdraw funds from her RRSP to pay for continued education. The withdrawal amounts and rules governing the withdrawal are similar to the HBP. $20,000 maximum repayable over 15 years.

 

Turning your House into a Tax Saving Machine RRSP and the Home Buyers Plan

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