Even though this week’s 2019 federal budget contained no fancy tax rate cuts, it did offer some relief and incentives. Nothing terribly exciting but nothing really terrifying for the average taxpaying citizen.

For example:

  1. The new “Canada Training Credit” (“CTC”) is aimed at providing financial support to help cover up to half of eligible tuition and fees associated with training.
  2. Starting next year, the government will proactively enroll CPP contributors who are age 70 or older and had not yet applied to receive their CPP benefits. Believe it or not, this is not already automatic!
  3. If you acquire your news online, the budget has proposed a temporary, non-refundable 15-per-cent tax credit for eligible digital news subscriptions. This will allow you to claim up to $500 in costs…good for $75…Yawn!

But, wait, there’s more, the Home Buyers’ Plan was given a well needed boost to better reflect market value growth in home prices. One way for many Canadians who have visions of buying a home is the home buyers plan (HBP) which helps you save money for a down payment towards a first home or condo. This week, the HBP got more interesting when the federal budget announced the amount that first-time home buyers can withdraw tax-free from their RRSP to buy a home will be increased to $35,000 from $25,000. If a home is purchased jointly with a spouse, each can withdraw up to $35,000 from their own RRSP under the HBP, for a total down payment of $70,000!

As per the budget, the increased limit is meant “to provide first-time home buyers with greater access to their RRSPs to purchase or build a home”. The HBP allows first-time home buyers to withdraw funds from an RRSP to purchase or build a home without having to pay tax on the withdrawal. Amounts withdrawn under the HBP must be repaid to your RRSP over a 15-year period.

The definition of the requirement for ‘First-time home buyer’ is detailed on the CRA website: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan/participate-home-buyers-plan.html)

(Note that the ‘First-Time’ part of the definition will be amended and be more flexible starting in 2020.)

Now, with the revamped, modernized HBP, the homebuyer has more options at their disposal. The Tax Free Savings Account (TFSA) is the other attractive option to a prospective homeowner. You can save towards that down payment inside a TFSA and funds can be accumulated tax-free and then withdrawn, at any time, to be used as you wish. As of 2019 the TFSA dollar limit is at $63,500. Anybody who has been able to contribute to their TFSA, can tap into these savings to help fund a down payment. Unlike the HBP, there is no obligation to repay the TFSA over a given period of time, since there is no tax deduction for TFSA contributions. A TFSA strategy allows you to be more flexible in case other cash flow urgencies arise and you do not have to be a first-time homebuyer.

If a new home is in your plans, then you have to look at what is best for you. Do you save your money in a TFSA or park it in your RRSP, knowing you have the HBP in your back-pocket. In general, higher income earners are advised to maximize your RRSP contributions before putting funds in a TFSA so that tax refunds will be received based on higher marginal tax rates and RRSP contributions can be accumulated with the idea of withdrawals for your HBP.

Your final strategy may be a hybrid of the HBP and the TFSA. Just know that there are options…

Gavin Correa

March 22, 2019

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