Investing

RRSP related question

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  • Aug 3rd, 2020 9:27 pm
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[OP]
Newbie
Mar 31, 2010
48 posts
2 upvotes

RRSP related question

Hi Everyone,

Potential First time home buyer here who has a lot of RRSP contribution room. I have a question regarding the scenario below:

Let's say I open an RRSP account and contribute $35,000 in it today (July 24th). If I let this sit in the account for the minimum 90 days and then withdraw as down payment to a purchased property (let's say on September 1st), I know this qualifies under the HBP plan option. However, since I have contributed and withdrawn from the RRSP within the same tax year (2020), Can I still deduct the $35,000 contribution from my taxes. Assuming my taxable income is 90K for the year, can I claim the $35K deduction on my taxes (even though It's withdrawn) making my taxable income $55K?

I understand I have to pay back the withdrawn amount in 15 years - interest free.

Thanks guys
11 replies
Deal Addict
User avatar
Jan 28, 2012
1751 posts
631 upvotes
Yeah that's the whole point of the HBP, you get the tax break for the RSP contribution but get to take it out to spend on a house. That's why there's the 90 day waiting period, so you can't just churn it immediately but as far as I am aware there is no problem doing what you describe in the same year.
Newbie
Jul 18, 2020
7 posts
Yes, you are correct you can withdraw $35,000 form your RRSP after 90 days in HBP plan. Just you need to fill up the while withdrawing it.
Deal Addict
Jun 7, 2005
4373 posts
209 upvotes
Not only do you need to pay it back, but that $35k contribution needs to be claimed over the next 15 years, which hurts your tax benefits for those 15 years.
Deal Addict
Sep 2, 2009
2396 posts
2421 upvotes
Ottawa
geniuspaki wrote: Hi Everyone,

Potential First time home buyer here who has a lot of RRSP contribution room. I have a question regarding the scenario below:

Let's say I open an RRSP account and contribute $35,000 in it today (July 24th). If I let this sit in the account for the minimum 90 days and then withdraw as down payment to a purchased property (let's say on September 1st), I know this qualifies under the HBP plan option. However, since I have contributed and withdrawn from the RRSP within the same tax year (2020), Can I still deduct the $35,000 contribution from my taxes. Assuming my taxable income is 90K for the year, can I claim the $35K deduction on my taxes (even though It's withdrawn) making my taxable income $55K?

I understand I have to pay back the withdrawn amount in 15 years - interest free.

Thanks guys
Just be careful with the 90 days (July 24th to September 1st is not 90 days in your example/question).
[OP]
Newbie
Mar 31, 2010
48 posts
2 upvotes
Impossibles wrote: Not only do you need to pay it back, but that $35k contribution needs to be claimed over the next 15 years, which hurts your tax benefits for those 15 years.
Really? I thought the hbp annual payment is added to your taxable income only if you dont make any contributions/repayment

In other words, no tax drawbacks if you pay back the annual amount every year.
[OP]
Newbie
Mar 31, 2010
48 posts
2 upvotes
cloak wrote: Just be careful with the 90 days (July 24th to September 1st is not 90 days in your example/question).
yes you are right. Used wrong dates in my example.
Newbie
May 23, 2011
91 posts
110 upvotes
geniuspaki wrote: Really? I thought the hbp annual payment is added to your taxable income only if you dont make any contributions/repayment

In other words, no tax drawbacks if you pay back the annual amount every year.
So what he means is, you have to pay that back over 15 years and it doesn’t count towards your deductions. Cause that would be double dipping.

So the following year, the first $35k/15 = $2333 of RRSP you buy, will be to repay the HBP, and won’t give you any tax deductions for that year.
Deal Addict
Jun 7, 2005
4373 posts
209 upvotes
JoloLo wrote: So what he means is, you have to pay that back over 15 years and it doesn’t count towards your deductions. Cause that would be double dipping.

So the following year, the first $35k/15 = $2333 of RRSP you buy, will be to repay the HBP, and won’t give you any tax deductions for that year.
What he said. Each year part of your RRSP contribution will be part of that $35k you withdrew. I did this for the LLP way back and kind of regretted it. It'll take a long time to put that $35k back into RRSP. Really need to make sure it's worth it for you, I found it a major pain.
Deal Addict
User avatar
Dec 24, 2007
1686 posts
2135 upvotes
BC
Impossibles wrote: What he said. Each year part of your RRSP contribution will be part of that $35k you withdrew. I did this for the LLP way back and kind of regretted it. It'll take a long time to put that $35k back into RRSP. Really need to make sure it's worth it for you, I found it a major pain.
What's there to regret...you can repay as much as you like each year but the Minimum repayment is 1/15 of the balance, 1/14 of the balance in year 2, 1/13 of the balance in year 3, etc. for 15 years.

$35K takes a long time no matter where you get your "loan".

Whether it is worth it really depends upon what you can earn on your RRSP investment. With interest rates are so low right now you might be better off just getting a loan.
Newbie
May 23, 2011
91 posts
110 upvotes
Well there is the calculation of now you’re missing out on 35k of tax free growth. So if you missed last year’s 20% growth cause you took it out to buy your house and you had the option of just taking out a higher mortgage at 3%, then that sucks.

But, if you were going to need a down payment anyways, dump your 35k into RRSPs, take it right back out under the HBP, and pay your down payment.
You’ll get the tax credit for the next few years, you’ll be no more or less in debt.

You’ll have to buy back into the RRSPs over 15 years, but you should do that anyways.
Member
User avatar
Jun 28, 2018
353 posts
420 upvotes
Aurora, Ontario
I’ve been paying back my rrsp withdrawal for FTHB for around 8 years now and I’ll second the others in this thread. I pretty much did what OP is asking. I put in 25k in the span of about 6 months and then took it out. If I could go back I would have just put it straight to downpayment. If you’re relatively young then you are getting a tax break at a time when your income is lower and then you’re taking a hit later when you’re older and in a higher tax bracket. Like most “help from government”, there is a catch and you’re not getting a good deal.

If you have no money and the only way you can afford is to tap RRSP then do it. But if you don’t have to I would avoid.

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