Unlimited RRSP Withdrawals for First Time Home Buyers
With the dramatic downturn in the economy as a result of the spread of the corona virus, many experts involved in the Toronto real estate industry are proposing that the federal government put in a new measure to allow new home buyers to withdraw unlimited amounts from their Registered Retirement Savings Plans (RRSPs), with the additional caveat that they should not have to repay the RRSP funds that are withdrawn as long as the money is used to purchase a new home.
The current program that allows real estate buyers to tap in to their RRSPs to buy their first home is currently known as the Home Buyers’ Plan. This current home buying program has limitations on how much first time home buyers are allowed to withdraw, and these funds all have to be paid back into the RRSP at a later date, basically functioning like an long term interest-free home buying loan.
Here is an outline of the main points of the current Home Buyers’ Plan:
$35,000 is the withdrawal limit. Anything above this will be taxed as if it were income.
The money taken on of the RRSP must be used as a payment towards your principal residence
Under the majority of circumstances, it must be for your first home.
If your spouse is also a first-time buyer, they can also withdraw the $35,000 without tax
Repaying, you must start by the second year after the original withdrawal at rate of 1/15th of the original amount per year, and all of the funds withdrawn must be repaid within 15 years.
Some of those in the government see this as a negative, stating they feel that the average Canadian home buyer is not financially literate enough to manage this program properly. Really?
The feeling here is that if the maximum RRSP withdrawal limit is removed, people will pull out much more form their accounts to put towards real estate, and in conjunction if the repayment is also removed, it will have a negative effect on their retirement.
Many successful real estate investors have responded by stating.. "what better place has there been to put your money over the last 20 years than in real estate", which really makes sense.
It would have been actually beneficial if more Canadians would have prioritizing real estate over retirement savings. Maybe the government just needs to get out of the way and let people manage their own finances as the see fit. Not everything is a one size fits all, and frankly, most programs put in by the government seem to end up having the reverse effect to their original intentions.