An RESP is a type of trust through which you can save for a child’s education. If you make contributions to such a plan, the amounts are not tax deductible, but the major advantage is that earnings accumulate on a tax-deferred basis. Also, when the funds are finally paid out to the child, the accumulated income earned in the plan (such as dividends or interest) is taxed in your child’s hands at his or her lower tax rate.
RESPs are often set up as family plans. This allows you to allocate the plan assets among related children or change the beneficiary of the plan to someone else in the family. Individual plans now have this same flexibility.
An RESP has a maximum life of 35 years and contributions can only be made until the beneficiary reaches 31 years of age. The contribution and termination period is extended by 10 years for beneficiaries who qualify for the disability tax credit.
To enroll your child in an RESP you must obtain a Social Insurance Number (SIN) for the child.
There is no annual contribution limit and the cumulative ceiling is $50,000 for each beneficiary, regardless of the number of subscribers. Overcontributions are computed at the end of each month and are subject to a special 1% monthly tax. It’s possible to reduce overcontributions by withdrawing funds from an RESP.
Transfer to an RRSP or RDSP
If all intended beneficiaries have reached the age of 21 years, and the plan has been in place for at least 10 years, you can withdraw the principal and the income from the plan. If you have sufficient RRSP contribution room, you can transfer the RESP income to your RRSP (or a spousal RRSP). Any excess income that cannot be transferred to an RRSP will be subject to a 20% penalty tax, in addition to regular income tax.
For transfers after 2013, investment income earned in an RESP can also be transferred on a tax-free basis to an RDSP provided the plans share a common beneficiary.
The total RESP income that you can transfer to an RRSP is subject to a lifetime limit of $50,000.
Canada Education Savings Grants (CESGs)
The federal government pays a subsidy for each child that is a beneficiary of an RESP from the day the child is born until his/her 17th birthday.30* The current annual maximum CESG per beneficiary is $500 (i.e., 20% of the first $2,500 of contributions paid annually). Each child is entitled to a cumulative limit of $7,200.
A family that did not contribute to its child’s RESP for a year or more can receive a grant of not more than $1,000 as a CESG in a year (i.e., on a maximum contribution of $5,000).31
The maximum annual grant on the first $500 contributed per child is increased slightly for low- and mid-income families.
An RESP will be required to repay CESG money in certain situations, such as when a beneficiary does not pursue higher education or the plan is terminated.
30 Contributions for a child aged 16 or 17 will receive a grant only if certain conditions are met.
31 For more information see: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/resp-reee/cesp-pcee/csg-eng.html.
Canada Learning Bond (CLB)
Under the Canada Learning Bond (CLB) program, every child is entitled to assistance, provided the family receives the National Child Benefit (NCB) Supplement. An initial $500 bond is provided in the year of the child’s birth with subsequent annual instalments of $100 until the age of 15 for each year the family is entitled to the NCB supplement.
Transfers to a spouse or common-law partner
All capital properties, such as shares in companies and real estate, are automatically transferred between spouses or common-law partners on a tax-free basis. If you want the transfer to take place at FMV, you must file a special election requesting this treatment when you file your tax return for the year of the transfer.
When the transferred property is eventually sold to a third party by your spouse or common-law partner, you’ll have to report any capital gain or loss realized on the sale unless all of the following conditions are met. First of all, your spouse or common-law partner must have paid FMV for the property at the time of the transfer. You must also have made the FMV election (as noted above), and sufficient annual interest on any unpaid purchase price must have been paid in full no later than January 30 of the following year. If all of these conditions have been met, any subsequent capital gain or loss realized on a sale to a third party can be taxed in your spouse or common-law partner’s hands (rather than in your hands).
Example: In June 2016, you decide to transfer your shares of XYZ Co. to your spouse. You acquired the shares in 2000 at a cost of $1,000 and they have a current FMV of $6,000. For tax purposes, your spouse will be deemed to have acquired the shares from you at a cost of $1,000. Therefore, you won’t recognize a capital gain or loss on the transfer. However, you’ll be taxed on any capital gain or loss that results when your spouse disposes of the shares (based on an original cost of $1,000).
Alternatively, by attaching a note to your tax return, you may elect to have the transfer to your spouse take place at FMV. As a result of making this election, you’ll report a capital gain of $5,000 and your spouse will be deemed to have acquired the shares from you at a cost of $6,000. If your spouse paid you $6,000 for the shares (say, by way of a loan from you) and the shares are subsequently sold for $8,000, the $2,000 gain would be taxable in your spouse’s hands—provided your spouse pays a reasonable rate of annual interest on the loan within the required time period.
Special rules apply in situations where the property has been transferred between spouses or common-law partners as part of a property settlement or where the couple is separated when the property is sold to a third party.
Tax tip: With current interest rates at fairly low levels, you might want to consider an income-splitting loan to your spouse or common-law partner. The attribution rules won’t apply if you are paid interest on the loan at the prescribed rate in effect at the time the loan is made. For example, the prescribed rate in effect for the third quarter of 2016 is 1%. This rate will remain in effect for as long as the loan is outstanding—even if rates increase in the future.
In implementing any income-splitting strategy, you have to be careful if you want to avoid the attribution rules. In situations where property is transferred to your spouse or common-law partner, attribution can apply to both income and capital gains. Contact your tax adviser to discuss the steps you need to take to accomplish this or other income- splitting strategies.
Transfers to other family members
A transfer of capital property to other family members is taxed just as if you sold the property at its FMV. If the property has been transferred to a child, grandchild, niece or nephew, you must continue to report any income earned on such property after it has been transferred—such as interest or dividend income—until the child reaches 18 years of age. After 18, attribution no longer applies and that individual must report the income. Capital gains, on the other hand, do not have to be attributed to you (regardless of the age of the child). This can be a useful income-splitting tool. However, make sure that any capital gain realized by a minor child is not subject to the “kiddie tax” rules
Tax tip: Unless the person receiving the property is your spouse or common-law partner, there is no requirement to attribute capital gains to you, the transferor. Consider buying in the names of your children capital property (such as equity-based mutual funds) with a low yield but high capital gains potential. The income will be attributed to you, but any future capital gains will be taxed in your children’s hands.
Tax tip: The deemed cost base of property received as a gift or inheritance is its FMV at the time of transfer. However, if you charge a nominal amount for the transfer of property— for example, $10—you’re deemed to receive FMV for the property, but the recipient’s cost base remains at $10. Therefore, it’s better to gift property than to charge a nominal amount, since the recipient will receive the full increase in the cost base.
Interest-free loans to family members
Caution should be exercised if you provide low-interest or interest-free loans to family members, either to enable them to purchase income-producing assets or as consideration for the transfer of assets. If one of the main reasons for the loan is to reduce or avoid tax, you must report any income earned on the property, regardless of the age of the loan recipient. An outright gift to a child who is 18 years or older—or anyone other than a spouse or common-law partner—is not subject to this rule.
You may qualify for the northern residents deduction if you lived in a prescribed area in northern Canada (northern or intermediate zone) on a permanent basis for a continuous period of at least six consecutive months commencing or ending in the taxation year for which a return is being filed. The deduction is claimed by filing Form T2222 with your return. You can review the CRA publication T4039, “Northern Residents Deduction— Places in Prescribed Zones,” to determine if you live in a prescribed northern or intermediate zone.
There are two deductions you may be able to claim:
1. A residency deduction for living in a prescribed zone
2. A travel deduction for taxable travel benefits you receive from employment in a prescribed zone
If you live in a prescribed northern zone, you can claim $11 ($8.25 in 2015) for each day in the taxation year that you lived there and an additional residency amount of $11 ($8.25 in 2015) per day if you’re the only person in your household claiming the residency deduction. If you live in an intermediate northern zone, the residency deduction is half the above amounts.
The residency deduction is reduced by the non-taxable benefit for board and lodging at a special work site (box 31 of your T4 slip, or from the footnotes area of your T4A slip) and is limited to 20% of your net income.
Subject to certain limits, you can also claim a travel deduction to the extent the value of travel benefits is included in your income from employment. This amount is reported in box 32 or 33 of your T4 slip, or box 28 of your T4A slip.
This deduction applies with respect to all trips made by you or a member of your household for the purpose of obtaining necessary medical services not available locally. It also applies to a maximum of two trips per person made by you or a member of your household (e.g., for vacations).
The maximum travel deduction you can claim cannot exceed the taxable travel benefits you received from your employer. The deduction for an employee in the intermediate zone is 50% of the amount that would be calculated for an employee in the northern zone.
You can claim medical expenses paid for yourself, your spouse or common-law partner and certain related persons Generally, subject to the comments below for other dependants, total eligible medical expenses must first be reduced by 3% of your net income or $2,237, whichever is less. The tax credit is 15% of the amount remaining.
Tax tip: Select your 12-month period to maximize the tax credit. The 12-month period ending in the year may vary from year to year, but you cannot claim the same expense twice. Keep your receipts for next year if some of your 2015 expenses are not claimed as a credit in 2016.
The list of eligible medical expenses is extensive and includes
- payments to medical practitioners, dentists or nurses, or to public or licensed private hospitals in respect of medical or dental services;
- additional costs related to the purchase of non-gluten food products;
- expenses paid for training courses for a tax payer or a related person in respect of the care of a person with a mental or physical impairment, who lives with or is a dependant of the taxpayer;
- cost of purchased or leased products, equipment or devices that provide relief, assistance or treatment for any illness;
- cost of blood coagulation monitors for use by individuals who require anti-coagulation therapy, including pricking devices, lancets and test strips;
- premiums paid to private health insurance plans;
- expenses incurred after 2013 for specially trained service animals that assist individuals with severe diabetes;
- remuneration for tutoring persons with learning disabilities, or other mental impairments, if the need for
such services is certified by a medical practitioner; and
- reasonable supplemental expenses for the construction or renovation of a residence to enable a person with a serious, prolonged handicap to have access to this residence, to move about therein and to carry out activities of daily living.
For 2014 and later years, the list of eligible medical expenses was expanded to include amounts paid for the design of an individualized therapy plan, where the cost of the therapy itself would be eligible for the credit and certain other conditions are met. In particular, the plan must be designed for an individual who qualifies for the disability tax credit.
Medical expenses of dependants other than a spouse or common-law partner
Subject to special rules, you may also claim medical expenses you have paid for a dependant. In general, a “dependant” is a person who is dependent on you for support at any time in the year, and who is the child, grandchild, parent, grandparent, brother, sister, uncle, aunt, niece or nephew of you or your spouse or common-law partner.
Claims for the medical expense credit for minor children are grouped with claims for you and your spouse or common-law partner. Medical expenses paid for other dependant relatives must first be reduced by 3% of that dependant’s net income, to a maximum of $2,208 in 2015.
Tax tip: If you pay medical expenses for a dependant other than your spouse or common-law partner or minor child, the ability to claim a medical expense credit is based on the dependant’s net income, not your own. As a result, even limited payments can qualify where the dependant’s income is quite low. Don’t forget to claim these amounts when you file your tax return.
Refundable medical expense credit
Eligible individuals who have business and/or employment income of at least $3,465 may be able to claim a refundable medical expense supplement. The refundable credit is 25% of medical expenses that qualify for the regular medical expense tax credit, up to a stated maximum. It’s reduced by 5% of the taxpayer’s (and spouse or common-law partner’s) income in excess of a specified amount ($26,277 per family). This credit is in addition to the tax credit for medical expenses. The maximum refundable medical expense supplement is $1,187 for the 2016 taxation year.
What you cannot claim as medical expenses
Many items do not qualify as medical expenses—for example, non-prescription birth control devices, drugs and medications that you can purchase without a prescription, funeral and burial costs, and gym memberships, to name a few. In addition, you cannot claim medical expenses for which you are reimbursed or are entitled to be reimbursed. Amounts paid for purely cosmetic procedures (including related services and other expenses such as travel) are not eligible for the medical expense tax credit unless they’re required for medical or reconstructive purposes.
Attendant care in a retirement home
In general, payments made to a nursing home or long-term care facility qualify for the medical expense tax credit, provided the individual meets all the criteria to claim the disability tax credit. The issue has been less clear with respect to amounts paid to a retirement home. However, it is the CRA’s position that seniors who live in a retirement home and are eligible for the disability tax credit can claim attendant care expenses as medical expenses. The maximum amount that can be claimed under this provision is $10,000 per year ($20,000 in the year of death).
To make the claim, you must have a receipt from the retirement home showing the portion paid for attendant care and be eligible for the disability tax credit.
Millennials have better job prospects than their parents ever did, at least according to a new report that says the tech-savvy nature of the country’s largest cohort will serve it well.
Laura Cooper, an economist with Royal Bank of Canada, looked at the future for Canada’s 9.8 million millennials and she says they are in “the driver’s seat” and will dominate Canada’s future in the same way that baby boomers did before them.
“Canadian millennials have inherited a labour environment in many ways better than that of their parents,” writes Cooper, who cites rising female participation in the workforce, increasing educational attainment and narrowing of wage differential between millennials, aged 20 to 34, and people of prime working age as trends now emerging.
The economist, who says much of the focus on millennials has pointed to a tough job market and high house prices, believes the rise of computers, the Internet and then smartphones coincided with the early years of that cohort and will serve them well in the future.
“For this generation, communicating through mobile devices and social media, engaging in e-commerce and consuming and producing digital content are second nature,” Cooper says. “These abilities ensure they will have a significant impact on the evolution of Canadian economic activity.”
Cooper says millennial youth are pursuing more education, which is contributing to a larger share of them working part-time. In 2015, 35 per cent of 20- to 24-year-olds in Canada worked part-time, versus 10 per cent in 1979.
On the full-time front, it may appear millennials have less job security, but they actually appear to change jobs about as frequently as baby boomers. On average, millennials stay at a full-time job 19 months, which compares with 21 months for baby boomers back in 1979. Millennials hold part-time jobs 17.5 months on average versus 15 months for baby boomers in 1979.
“These figures suggest that the path to establishing a career isn’t that much different for millennials. Notably, the unemployment rate for 20 to 24 year olds was 10.4 per cent in both 1979 and 2015,” Cooper says.
Canadian millennials have inherited a labour environment in many way better than that of their parents
The economist also points out millennials have turned to entrepreneurship, with the share of self-employed 15- to 24-year-olds doubling over the last two decades. The proportion of all start ups owned by someone under the age of 30 reached nine per cent in 2014.
Millennial women also are poised to benefit from a more level playing field as they begin to comprise a greater share of graduates with STEM (science, technology, engineering and mathematics) degrees compared to previous generations. In science and technology, 59 per cent of degree holders are female. Nevertheless, in 2015 Canadian women still earned 87 cents for every dollar earned by a man.
Cooper also notes millennial family dynamics have changed, with only 31 per cent of the cohort married or living in common law patnerships in 2015, down from 44 per cent for baby boomers in 1970. The average age of a woman giving birth to her first child has increased by two years over the past three decades, which has helped shrink the average family size to 3.0 in 2016 from 3.3 in 1981.
While policy makers worry about the impact of high prices, millennials are actually buying more than predecessors because of low rates. Home ownership among 20- to 34-year-olds was 47 per cent in 2011 versus 45 per cent in 1981.
Finally, Cooper says millennials are the most ethnically diverse generation Canada has ever seen, adding that different perspectives of individuals from diverse backgrounds can encourage innovative thinking and provide broader networks for relationships.
The registered retirement savings plan, 60 years running as of 2017, has had a big head start when it comes to personal financial planning in Canada, but after eight years of existence, the tax-free savings account appears to making up ground fast.
As they now both do battle for your hard-earned savings, the right vehicle for you can come down to a number of factors, not the least of which might be your plans for the money and whether you’ll be accessing it in the short-term, medium term or long-term.
“The short-term is usually one-to-five years,” says Carol Bezaire, vice-president tax, estate and strategic philanthropy of Mackenzie Investments. “If you are going to invest in the short-term, it always depends on your lifestyle and the kind of money you are putting away — pre-tax money or after tax money. You need to know your tax picture.”
If you’re in a high bracket, she says you probably do want to max out on your RRSP contribution to get a deduction and produce more after tax money.
“I think when we talk about saving for more short-term things like vacations or cars, the TFSA makes sense,” said Bezaire. “You’ll be taxed on any money you take out of your RRSP, unless it’s under the Home Buyers’ or Lifelong Learning Plan.”
One short-term problem becoming increasingly more common for savers could be sudden employment and a need for cash fast. A withdraw from your RRSP would face a withholding tax plus it would count as income in the year you had employment.
“People do have significant savings in their TFSAs and the advantage is if you withdraw that money, you can pay it back in the next year,” she says.
Brian Burlacoff, an advisor with Sun Life Financial, points out the Lifelong Learning Plan allows you to access some of your money to get more education, a short-term financial situation with long-term goals.
Under the lifelong learning plan you can withdraw up to $20,000 from your RRSP — $10,000 in each calendar year — as long as you or your spouse or common law partner is in enrolled in a designated education program defined by the government. The money has to be repaid over 10 years, one-tenth each year.
He says saving for something as simple as a vacation clearly falls into the TFSA category. The problem with RRSP withdrawal, in addition to being taxed, is the contribution room is gone forever.
Michael Allen, a portfolio manager at Wealthsimple, which focuses on millennials and counts 87 per cent of its clientele as under 45, says the liquidity benefits of the TFSA have become very popular for younger Canadians.
“We think of one to three years as short-term and we don’t recommend in investing in the market at all,” he says. “We don’t want people risking something that’s important for an extra few percentage points.”
Your time horizon depends on how you define it but a house leans more towards that medium term and the RRSP has a plan to, at least partially, address housing prices.
Up to $25,000 can be withdrawn from RRSP under the first-time home buyers’ plan without affecting your future contribution room. Your repayment period starts the second year after the year you withdrew funds from your RRSP and then you must repay the loan over the next 15 years, one-fifteenth each year.
The problem with RRSP withdrawal is the contribution room is gone forever
“I think the TFSA is good as well (for buying a house) but (annual) limits are smaller and if you have steady employment you want to get those deductions,” said Bezaire.
Burlacoff recommends making a one-time $25,000 contributions into your RRSP, if you have the room, and deduct that amount off your taxable income, before using the money to buy a home. “Someone in a 20 per cent marginal tax rate in Ontario, that person who has $25,000 in their pocket could put it towards their home and that’s great or they could put in their RRSP and get $5,000 in income tax savings back,” he says.
On the long-term front, one of the problems for the RRSP has become that people are still working well past 65. The whole idea of an RRSP is being in lower income tax bracket in retirement, when you withdraw the money.
“It’s just not the case anymore. We have a lot of business owners and they’re making a lot of money and they don’t retire at 65,” said Bezaire.”I’d say even if you are at the same tax bracket in 15-20 years, you’ve still had those years of deferred no-tax growth. It still makes a lot of sense.”
In your retirement, TFSA withdrawals will have the advantage of not counting towards as income in terms of clawback of Old Age Security which in 2016 started at about $76,000 in income.
Burlacoff says if client tells him they will be in the first marginal tax bracket for the majority of their career and near retirement, there is a strong argument to be made for saving first in the TFSA and then the RRSP.
In your retirement, TFSA withdrawals will have the advantage of not counting towards as income
Allen says the soft benefit to the RRSP is that you are really hit hard on withdrawals and that forces clients “to be disciplined,” removing any incentive to touch that money.
“What are finding with millennials is retirement is an option (they are looking at) but the more important goal seems to be financial independence,” says Allen, adding 30-40 years just isn’t a perspective they can handle. “We set some 10 and 20 year goals. We think of it as a roadmap with stops on way.”
Every generation’s young people get a bad rap when it comes to questions of responsibility, financial or otherwise. Those who are lumped into the under-35 category today are stereotyped as spoiled, debt-dependent and — at the peril of their savings — fixated on YOLO or FOMO or whatever acronym that is synonymous with instant-gratification. However, Millennials have a lot of great things going for them. Not only do they have incredible side hustle and ambitious money goals, but their tech savvy provides incredible opportunities and choices. Here are some financial wins that we can all learn from Millennials.
They’re tech savvy
“Millennials have a lot of fabulous things going for them,” Edward Kholodenko, CEO and founder of Questrade, best known for its online trading platform. “The proliferation of technology has really allowed the Millennial generation to improve access, convenience, costs and their total experience, as they’ve grown up so comfortable being online.” Online portfolio managers or “robo-advisers” enable those with a small amount to invest — especially younger investors who’ve been neglected in the money management sphere — to access a professionally managed portfolio at a low cost, he adds. A 2013 BMO survey found that 71 per cent of Canadians under 35 use mobile banking apps, taking advantage of automated bill payments or transfers to a savings account. Also, independent financial apps can help with almost any money issue, whether it’s budgeting, paying down debt, finding deals and filing receipts.
They’re masters of the second-hand market
To fund a trip, my best friend made more than $1,500 selling things around her house on a Facebook Bidding Wars group last summer. When compared to the general population, Millennials are more likely to tap into the second-hand economy to find great deals (62 per cent versus 53 per cent) and to save extra money (66 per cent versus 59 per cent), according to new research from Kijiji. “Millennials are a generation of deal-seekers and are proud of it,” Marc-André Hade, a spokesperson for Kijiji, says. “Many turn to the second-hand economy to make their desired lifestyle more affordable.” Millennials are also more likely to see the second-hand economy as a resource to earn extra money (51 per cent compared to 39 per cent of the general population). “There are even some millennials buying items online with the express purpose of selling them online to make money. We refer to these industrious Kijiji users as ‘mini-entrepreneurs,’” Hade adds.
“If you go for it with a concerted, realistic effort, that drive and passion make up for everything,” Scott Plaskett, a certified financial planner, says. And go for it, you should, especially if you have the cushion of time: the younger you are, the more financial risks you can take because you have less to lose and more time to make up for any losses. “But stress test whatever plan you’re putting into place,” Plaskett says. For example, he adds, if you’re borrowing money, see if your plans still work if interest rates are double what they are today.
They’ve got awesome side hustle
That ambition and entrepreneurial spirit means that Millennials are busting their butts to meet money goals and fulfill passions. Forty-two percent of Millennial entrepreneurs recently surveyed for American Express Canada and Startup Canada, said they hold a second job. And with the rise of the on-demand gig economy and e-commerce, it’s never been easier to moonlight on your own terms whether you’re driving for Uber or offering on-demand childcare through DateNight, an app for babysitting services.
They actually do save money
A 2016 survey by Tangerine found that 62 per cent of those 18 to 34 have started saving for retirement and almost half said they started before the age of 25. When asked when they started saving, only 18 per cent of Canadians aged 35 to 56 reported to have started before they were 25. Finally, 42 per cent of Millennials say the best strategy for saving is to pay yourself first by setting up an automatic savings program. That’s advice we can all take to the bank.
The Home Buyers’ Plan (HBP) is nothing new in Canada, the basic gist being that RRSP contributions, which generate a tax deduction in the year paid, can be withdrawn later (max $25,000) to purchase a qualifying home in Canada. There are number of requirements that must be met, including: when the home must be purchased by, how long the funds must be in your RRSPs, and what meets the definition of a qualifying home. Such requirements are outside the scope of this blog post, however most accountants and financial advisers are aware of the requirements so you should not have difficulty making sure you abide by them. The focus of this post is how to maximize the HBP with your spouse.
Spouses who are in different tax brackets, especially when a spouse is subject to the highest tax bracket and the other has little to no income, should consider spousal RRSP contributions. The higher income earner (contributor) will receive a tax deduction for spousal RRSP contributions in the name of his/her spouse (the “annuitant”). Further, the funds will be taxed in the annuitant’s hands provided they remain invested for at least 3 years. Funds drawn by the annuitant within the first 3 years revert back to the contributor for tax purposes thereby potentially negating any benefit as they would be taxed in the hands of the higher-income spouse. The exception to this rule is if the funds are withdrawn under the HBP. The annuitant can withdraw up to $25,000 of RRSP contributions made by the contributor. The HBP rules require the funds to be paid back or taken into income by the person who withdrew the funds over a period of 15 years. The following example helps illustrate the benefit:
Brad has a high paying job of $150,000 year and Katie is a stay at home mom, working part time for $10,000 a year. They are renting a condo in Burlington and are looking to purchase a house in the not too distant future. Over the past 5 years Brad has been able to save in his RRSPs $35,000 whereas Katie has never contributed to her RRSPs. The family also has a savings account put aside for their home purchase with a balance of a little over $30,000 saved from Brad’s wages. Brad could set up a spousal RRSP plan and make $25,000 of spousal contributions in 2017. Brad will receive a $25,000 tax deduction on his 2017 tax return thereby saving tax at his high marginal rate. As long as all the requirements have been met, Brad and Katie can each withdraw $25,000 to use towards the purchase of a qualifying home. $25,000 from Brad’s RRSPs and $25,000 from Katie’s RRSP. Two years after purchase, the HBP must start to be paid back, over 15 years, and this can be done in one of two ways. First, by contributing funds to the RRSP plan or alternatively by being taken into income and paying taxes on the annual amount. If Brad and Katie’s employment situations remain the same, it makes more sense as a family to have Brad continue making RRSP contributions to his and the spousal RRPS plans, while having Katie forgo contributing to her RRSPs. The resulting effect is that Brad will continue to receive tax deductions (less the required HBP payment) at his high marginal tax rate whereas Katie will have to pay tax on the $1,666 annual amount ($25,000 / 15 years) at her low marginal tax rate, potentially avoiding tax altogether depending on her taxable income. It’s worth noting that Brad’s contributions to the spousal RRSP plan after the HBP withdrawal cannot be designated as repayments by Katie.
The Home Buyers Plan is a great tool for entering the real estate market and as illustrated above, can even allow you to technically split income with your spouse.
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