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Old
03-31-2009, 02:11 AM
  #1
Kingbobert
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RRSP Help

Hey Guys,

I was wondering, if i contribute a lump sum to my RRSPs, how long do i have to keep it there so it can count towards my income tax next year?

The reason i'm asking is cause i want to put a lump sum and then use that amount for a down payment for a home, but i dont want to put it in RRSP if it wont help with my tax return next year.

Thanks

PS: Reason i'm asking here is cause i looked online and asked 3 financial advisors that were oblivious. I've seen alot more complicated question get legit answers here so what the heck.

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03-31-2009, 03:25 AM
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Lucius
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Quote:
Originally Posted by Kingbobert View Post
Hey Guys,

I was wondering, if i contribute a lump sum to my RRSPs, how long do i have to keep it there so it can count towards my income tax next year?

The reason i'm asking is cause i want to put a lump sum and then use that amount for a down payment for a home, but i dont want to put it in RRSP if it wont help with my tax return next year.

Thanks

PS: Reason i'm asking here is cause i looked online and asked 3 financial advisors that were oblivious. I've seen alot more complicated question get legit answers here so what the heck.
If you put it in in 2009, it counts for 2009. If you're doing your taxes for last year, it's too late to make contributions for 2008. You should have it noted from last year how much your maximum annual contribution is.

Furthermore, it's not quite as simple as just putting it in as a quasi savings account for a house. Taking it out for a first time home is really more like a convoluted loan to yourself.

In my completely unqualified opinion, RRSPs are so restrictive as to be useless. It's better to just pay the taxes unless you're really close to a bracket and just need a nudge.

P.S. Don't take my word for any of this, I am by no means an expert.

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03-31-2009, 03:39 AM
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Kingbobert
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Originally Posted by Lucius View Post
If you put it in in 2009, it counts for 2009. If you're doing your taxes for last year, it's too late to make contributions for 2008. You should have it noted from last year how much your maximum annual contribution is.

Furthermore, it's not quite as simple as just putting it in as a quasi savings account for a house. Taking it out for a first time home is really more like a convoluted loan to yourself.

In my completely unqualified opinion, RRSPs are so restrictive as to be useless. It's better to just pay the taxes unless you're really close to a bracket and just need a nudge.

P.S. Don't take my word for any of this, I am by no means an expert.
it would be for taxes next year
i understand it's like a loan to yourself, but if i put a big lump some without giving too much detail, i'm looking at dropping 2 tax brackets or almost, and getting a very big sum back.

Since i was planning on putting away for my rrsp till retirement, 15years to pay back the sum i take out wont be a prob, however it's the money i gain on next years income tax thats attractive

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03-31-2009, 03:48 AM
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Originally Posted by Kingbobert View Post
it would be for taxes next year
i understand it's like a loan to yourself, but if i put a big lump some without giving too much detail, i'm looking at dropping 2 tax brackets or almost, and getting a very big sum back.

Since i was planning on putting away for my rrsp till retirement, 15years to pay back the sum i take out wont be a prob, however it's the money i gain on next years income tax thats attractive
Sure, ok, well if it's for 2009 and its contributed to your RRSP I believe it just has to be contributed. Since the withdraw isn't permanent, that is pretty much irrelevant.

I assume you're talking about a yo-yo type thing where you avoid your taxes in 09 on that money, but also buy a house shortly thereafter.

That theoretically shouldn't be an issue, that's why it's a "loan" to yourself, after all right? Government wise it still has to go back in. The whole point of the homeowner thing is to get people to buy them. It would be absurd then to forbid contributions from that year or nearby the purchase from counting. Over the long run, it all amounts to the same thing.

It's not a definitive answer, but it's about as sure as you can get on a hockey forum

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03-31-2009, 06:05 AM
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It would indeed count towards you tax rate for next year. You have to have it in the rrsp account for at least 3 months before you can remove it to use as part of the program, or this is what my financial advisor told me 2 years ago when I did it. In my case I had to transfer the funds over in January to make sure they were available for the April closing on my new home.

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03-31-2009, 06:48 AM
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Originally Posted by Kingbobert View Post
Hey Guys,

I was wondering, if i contribute a lump sum to my RRSPs, how long do i have to keep it there so it can count towards my income tax next year?

The reason i'm asking is cause i want to put a lump sum and then use that amount for a down payment for a home, but i dont want to put it in RRSP if it wont help with my tax return next year.

Thanks

PS: Reason i'm asking here is cause i looked online and asked 3 financial advisors that were oblivious. I've seen alot more complicated question get legit answers here so what the heck.
I am assuming you want to use the Home Buyers Plan option on your RRSP. If you make a contribution now it will count toward your 2009 taxes. You can then take out that money (up to $25,000) to put toward the purchase of your first home. This has to be paid back to RRSP over the next 15 year, 1/15 per year at a time. If you don't that amount will count against income for that year.

And for the answer to your question. You have to wait 90 days from your contribution to qualify for the home buyers plan. There is one loophole to that. You can find a detailed guide book on the ccra website by searching for the Home Buyer Plan on that website.

Hope this helps.

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Old
03-31-2009, 07:56 AM
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Quote:
Originally Posted by Richer View Post
I am assuming you want to use the Home Buyers Plan option on your RRSP. If you make a contribution now it will count toward your 2009 taxes. You can then take out that money (up to $25,000) to put toward the purchase of your first home. This has to be paid back to RRSP over the next 15 year, 1/15 per year at a time. If you don't that amount will count against income for that year.

And for the answer to your question. You have to wait 90 days from your contribution to qualify for the home buyers plan. There is one loophole to that. You can find a detailed guide book on the ccra website by searching for the Home Buyer Plan on that website.

Hope this helps.
Has the amount changed? I was only allowed to used $20K and a few websites I just checked still say 20.

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Old
03-31-2009, 07:57 AM
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I don't agree with Lucius, RRSP are one of the few gifts for middle class, along the TFSA (celi).

Too bad, you had 3 bad financial advisors, a good one would help you find the "best" strategy, ex: some money in usual RRSP, ($5000) in some Fonds des travailleurs. Ask your co-workers for a good advisor, it might help.

For the record, I did what you are planning to do, 16 years ago.

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Old
03-31-2009, 08:32 AM
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Hey,

Your allowed withdrawing up to 20 thousand per person. So if you have a spouse then can also withdraw the same amount from there RRSP. You need to keep the funds in your RSP for at least 90 before you can withdraw it and then you can do whatever you want with it. It's very easy to pay back to, after 2 years you start paying back 1/15 of the loan. It's very easy to all you have to do is contribute to RSP as you normally would do and write the amount in a little box on your tax returns next year. The only thing I would watch out for is the Lump sum contribution. You can contribute 18% of your annual income with a maximum of 19,000$ per year or you will be penalized. A little thing you can look into though is that you are also allowed to contribute money to RSP that you haven't contributed since 1991. So if in 1991 you were allowed to contribute 5,000 and you only put in 4,000 then you'd be able to contribute an extra amount of 1,000$.

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Old
03-31-2009, 08:50 AM
  #10
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Originally Posted by sferreira123 View Post
Hey,

Your allowed withdrawing up to 20 thousand per person. So if you have a spouse then can also withdraw the same amount from there RRSP. You need to keep the funds in your RSP for at least 90 before you can withdraw it and then you can do whatever you want with it. It's very easy to pay back to, after 2 years you start paying back 1/15 of the loan. It's very easy to all you have to do is contribute to RSP as you normally would do and write the amount in a little box on your tax returns next year. The only thing I would watch out for is the Lump sum contribution. You can contribute 18% of your annual income with a maximum of 19,000$ per year or you will be penalized. A little thing you can look into though is that you are also allowed to contribute money to RSP that you haven't contributed since 1991. So if in 1991 you were allowed to contribute 5,000 and you only put in 4,000 then you'd be able to contribute an extra amount of 1,000$.
Correct but the maximum contribution goes up yearly- 2008 was 20K and 2009 will be 21K:

http://www.rbcroyalbank.com/products...rsp-rules.html

FYI I don't work for RBC

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Old
03-31-2009, 09:31 AM
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Yea, RRSP is great! It reminds me of a friend telling me about how everyone lost money in their RRSP with the current crisis. He told me "not him, haha! I don't have any, so I didn't lose any money!!" and he believed that was wise!!

Anyway, as for the use of RRSP to buy a house, I would suggest you to avoid that if possible. You'll be paying back your RRSP with money on which you'll pay taxes (let's say 35%) So the 25 000$ will cost you about 35 000$.
Over 17 years, this is about 4.3% Annual Interest (monthly capitalized).

Also, you can assume your 25 000$ would grow over the years. By being REALLY carefull, let say you would earn 5% Annual Interest (monthly capitalized) on it, in 17 years it would be worth 57 000$.
If you rather make 8% per year, it would be 92 000$.

On the other hand, if you don't use your RRSP, but rather a loan at 7% rate over 17 years, it would cost you 40 500$.


However, this is not ACCURATE, as you would make some interest on the money you would payback gradually to your RRSP.. The trick is to pay back early!
If you pay back a steady 1 675$/year, you would still make 5% on this. After 17 years, you would have 36 150$ in your RRSP, just by paying back your 25 000$ every year.

RRSP => Cost=35 000$, Money's worth in 17 years=36 150$
Not using RRSP, Keeping your RRSP at 5% => Cost=40 500$, Money's worth in 17 years=57 000$
Not using RRSP, keeping your RRSP at 8% => Cost=40 500$, Money's worth in 17 years=92 000$

I made a lot of assumption, tax rate, interest rate... At the very least, it gives you a complete picture. Also, 5% interest for your RRSP is crappy and you should make more than that!

I used 17 years, I think I'm mistaken and it should be 16.. but I don't want to redo all the calculs.. Basically, it is because you have 15 years to repay from January 1st of the second year after purchase.

=> http://www.sandyhines.com/rrsp.htm

Anyway, using RRSP is a last resort when you know what you are doing and if you have other source of money. If you have no other way to finance it, than so be it


As for your real question, you must own your RRPS at least 89 days to use them for deduction and to finance your house.

You should not be asking banks for that but rather "Revenu Canada": 1-800-959-7383
You might need to call several times to get some slithly different stories from them

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Old
03-31-2009, 11:21 AM
  #12
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Quote:
Originally Posted by tigidou View Post
Yea, RRSP is great! It reminds me of a friend telling me about how everyone lost money in their RRSP with the current crisis. He told me "not him, haha! I don't have any, so I didn't lose any money!!" and he believed that was wise!!
Anyway, as for the use of RRSP to buy a house, I would suggest you to avoid that if possible. You'll be paying back your RRSP with money on which you'll pay taxes (let's say 35%) So the 25 000$ will cost you about 35 000$.
Over 17 years, this is about 4.3% Annual Interest (monthly capitalized).

Also, you can assume your 25 000$ would grow over the years. By being REALLY carefull, let say you would earn 5% Annual Interest (monthly capitalized) on it, in 17 years it would be worth 57 000$.
If you rather make 8% per year, it would be 92 000$.

On the other hand, if you don't use your RRSP, but rather a loan at 7% rate over 17 years, it would cost you 40 500$.


However, this is not ACCURATE, as you would make some interest on the money you would payback gradually to your RRSP.. The trick is to pay back early!
If you pay back a steady 1 675$/year, you would still make 5% on this. After 17 years, you would have 36 150$ in your RRSP, just by paying back your 25 000$ every year.

RRSP => Cost=35 000$, Money's worth in 17 years=36 150$
Not using RRSP, Keeping your RRSP at 5% => Cost=40 500$, Money's worth in 17 years=57 000$
Not using RRSP, keeping your RRSP at 8% => Cost=40 500$, Money's worth in 17 years=92 000$

I made a lot of assumption, tax rate, interest rate... At the very least, it gives you a complete picture. Also, 5% interest for your RRSP is crappy and you should make more than that!

I used 17 years, I think I'm mistaken and it should be 16.. but I don't want to redo all the calculs.. Basically, it is because you have 15 years to repay from January 1st of the second year after purchase.

=> http://www.sandyhines.com/rrsp.htm

Anyway, using RRSP is a last resort when you know what you are doing and if you have other source of money. If you have no other way to finance it, than so be it


As for your real question, you must own your RRPS at least 89 days to use them for deduction and to finance your house.

You should not be asking banks for that but rather "Revenu Canada": 1-800-959-7383
You might need to call several times to get some slithly different stories from them
I agree that for a large portion of the population RRSP are the way to go but not for everyone. If you have another source of income set aside for your retirment your RRSP's might become more of a burden and you might end up paying more in taxes. In my case I work for the federal government and we have an amazing pension so RRSP's would be a problem for me come retirement as I will receive 70% of my top 5 years if I stay for the whole 35 years and that is indexed. If you add money from RRSP I will pay more in taxes retired then when I was working.

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Old
03-31-2009, 11:27 AM
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Kingbobert
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thanks everyone.

ya and about the advisers, ya avoid CIBC at all costs.

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03-31-2009, 11:31 AM
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Originally Posted by Kingbobert View Post
Hey Guys,

I was wondering, if i contribute a lump sum to my RRSPs, how long do i have to keep it there so it can count towards my income tax next year?

The reason i'm asking is cause i want to put a lump sum and then use that amount for a down payment for a home, but i dont want to put it in RRSP if it wont help with my tax return next year.
Putting it in an RRSP won't help you much, as you'll be taxed when you take it out for the down payment. Better off buying a Tbill or GIC till you need it for a fixed rate of return.

Plus, you get a 10k tax credit, if you spend that money on your house renovation, as per the last budget. You still come out ahead either way.

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Old
03-31-2009, 11:31 AM
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Quote:
Originally Posted by Habs View Post
Putting it in an RRSP won't help you much, as you'll be taxed when you take it out for the down payment. Better off buying a Tbill or GIC till you need it for a fixed rate of return.

Plus, you get a 10k tax credit, if you spend that money on your house renovation, as per the last budget. You still come out ahead either way.
Actually no you won't be taxed that is the whole idea behind the home buyer program.

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03-31-2009, 11:33 AM
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Actually no you won't be taxed that is the whole idea behind the home buyer program.
Oh shoot, I'm out of touch with this then. Carry on Gentlemen.

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Old
03-31-2009, 12:57 PM
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I agree that for a large portion of the population RRSP are the way to go but not for everyone. If you have another source of income set aside for your retirment your RRSP's might become more of a burden and you might end up paying more in taxes. In my case I work for the federal government and we have an amazing pension so RRSP's would be a problem for me come retirement as I will receive 70% of my top 5 years if I stay for the whole 35 years and that is indexed. If you add money from RRSP I will pay more in taxes retired then when I was working.
Then you probably don't have a lot of RRSP room anyway, right ? Your pension has a multiplicator (6 ? 9?), so you can't put a lot of RRSP even if you wanted, correct ? What is your multiplicator?

I'm guessing that you still endup contributing near to your maximum due to your pension and its multiplicator... I still consider that as "contributing to your RRSP", you simply go through your pension plan instead of managing it yourself...

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03-31-2009, 03:53 PM
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Originally Posted by tigidou View Post
Then you probably don't have a lot of RRSP room anyway, right ? Your pension has a multiplicator (6 ? 9?), so you can't put a lot of RRSP even if you wanted, correct ? What is your multiplicator?

I'm guessing that you still endup contributing near to your maximum due to your pension and its multiplicator... I still consider that as "contributing to your RRSP", you simply go through your pension plan instead of managing it yourself...
RRSP can be a bad idea for people who will not contribute to the consistently. Say you are able to put away only about $70,000 by the time you retire. Chances are it took effort to save that money but by the time you start withdrawing you will only be recieving a small amount per year. Where it can hurt people is if they have income tested benefits from the government. They say recieve $2000 from their RRSP, are then taxed on that amount but the kicker is they can lose possibly thousands in drug benefits, OAS, and housing assistance.

Basically if you can only put $50 a month away for 30 years you would be better of keeping that money and invest it in something like education so you can make more money. Or just spend it as it will give you more now while not really taking away from your future. If can put away more than that RRSP are great.

Oh and the Home Buyers Plan Limit has been upped to $25,000. If you have a spouse with an RRSP thats $50,000 for a downpayment. That is a great way to pay for the house. If only buying a house wasn't such a bad investment then it would be an even better idea.

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03-31-2009, 04:10 PM
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good source

I don't want to add my two cents since there are a lot of great, accurate answers above.

When I was planning to buy my home and use my RRSP - I called 1-800-O Canada to get my answers from the source...my financial advisor confirmed it to be true.

Good luck

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03-31-2009, 05:09 PM
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Originally Posted by sferreira123 View Post
Hey,

Your allowed withdrawing up to 20 thousand per person. So if you have a spouse then can also withdraw the same amount from there RRSP. You need to keep the funds in your RSP for at least 90 before you can withdraw it and then you can do whatever you want with it. It's very easy to pay back to, after 2 years you start paying back 1/15 of the loan. It's very easy to all you have to do is contribute to RSP as you normally would do and write the amount in a little box on your tax returns next year. The only thing I would watch out for is the Lump sum contribution. You can contribute 18% of your annual income with a maximum of 19,000$ per year or you will be penalized. A little thing you can look into though is that you are also allowed to contribute money to RSP that you haven't contributed since 1991. So if in 1991 you were allowed to contribute 5,000 and you only put in 4,000 then you'd be able to contribute an extra amount of 1,000$.

Correction, you can now withdraw up to $25,000 for the home-buyers plan. If you have a spouse or common-law partner, he or she, can also withraw $25,000 from his/her own RRSP as well, giving you a total of $50,000 to use as a down payment on a house.

You will then need to repay that balance over the next 13 years or roughly $2,000 per year. If you do not put that money back every year in your RRSP, it will count as income for that year and you will therefore pay tax on that amount. If you put it back in your RRSP, you cannot use this $2,000 repayment as a deduction, however you do not need to pay any "extra" tax. Another thing that is important to note, is that if you do not put it back in, you lose that RRSP contribution room for the future. By putting it back, you do not lose any contribution room overall.

You will need to put the money in for at least 3 months before you withdraw the funds.

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03-31-2009, 05:48 PM
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When I was planning to buy my home and use my RRSP - I called 1-800-O Canada to get my answers from the source...my financial advisor confirmed it to be true.
Do you have to be 18 or older to call, and does it cost 3.99 per minute?

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03-31-2009, 06:24 PM
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Originally Posted by Kingbobert View Post
Hey Guys,

I was wondering, if i contribute a lump sum to my RRSPs, how long do i have to keep it there so it can count towards my income tax next year?

The reason i'm asking is cause i want to put a lump sum and then use that amount for a down payment for a home, but i dont want to put it in RRSP if it wont help with my tax return next year.

Thanks

PS: Reason i'm asking here is cause i looked online and asked 3 financial advisors that were oblivious. I've seen alot more complicated question get legit answers here so what the heck.
First offf, RRSP contributions can be backdated or carried forward. So any contribution your making today (given you have the extra contribution space) can be used in the past as well (I believe 3 years back).

If your looking to use it to buy a home then it must stay there for I think 3 months if Im not mistaken. The loan must than be paid back over 20 some odd years. Now the truth is noone at Revenue Canada actually checks, so it doesn't really matter if you pay it back or not. Keep in mind that you can only pull out the RRSP's if you are a FIRST time home owner. If this isn't your 1st home, then you can pull out $5000 a day for as many days as you want and only pay a 10% holding tax, which can also be a good option.

Btw, RBC is a much better bank than CIBC.

Hope that all helps

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03-31-2009, 06:40 PM
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I did this also a few years ago. One thing that should be noted in the calculations is the CMHC charge that is to scale with the size of the mortgage which reduces with the downpayment. Putting $25k (or whatever) down can reduce your CMHC charge by a few thousand dollars which, if left on the mortgage instead, will cost you 4-6% annually for the complete term.

Buying a house with no downpayment still costs money! If you don't put money down and take a 2.9% one-time insurance premium...consider it the LAST amount of principal you will pay off...20 years at say 5%....thats an extra $8-9k on a $100k house (which I use as an example as its easy to scale..) It doesn't make a whole lot of sense to pay a big insurance premium (which only insures your lender not you) when you actually have the assets to cover it.

taken from the cmhc website....

Loan-to-Value/ Premium on Total Loan/ Premium on Increase to Loan Amount for Portability and Refinance/
Standard Premium /Self-Employed without 3rd Party Income Validation Standard Premium /Self-Employed without 3rd Party Income Validation**
Up to and including 65% 0.50% 0.80% 0.50% 1.50%
Up to and including 75% 0.65% 1.00% 2.25% 2.60%
Up to and including 80% 1.00% 1.64% 2.75% 3.85%
Up to and including 85% 1.75% 2.90% 3.50% 5.50%
Up to and including 90% 2.00% 4.75% 4.25% 7.00%
Up to and including 95% 2.75% 6.00% 4.25%* *
90.01% to 95% —
Non-Traditional Down Payment*** 2.90% N/A * N/A
Extended Amortization Surcharges
Greater than 25 years, up to and including 30 years: 0.20%
Greater than 30 years, up to and including 35 years: 0.40%


Go habs.

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Old
03-31-2009, 06:41 PM
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go out and buy "the wealthy barber"

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03-31-2009, 07:03 PM
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beowulf
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Quote:
Originally Posted by jean004 View Post
Correction, you can now withdraw up to $25,000 for the home-buyers plan. If you have a spouse or common-law partner, he or she, can also withraw $25,000 from his/her own RRSP as well, giving you a total of $50,000 to use as a down payment on a house.

You will then need to repay that balance over the next 13 years or roughly $2,000 per year. If you do not put that money back every year in your RRSP, it will count as income for that year and you will therefore pay tax on that amount. If you put it back in your RRSP, you cannot use this $2,000 repayment as a deduction, however you do not need to pay any "extra" tax. Another thing that is important to note, is that if you do not put it back in, you lose that RRSP contribution room for the future. By putting it back, you do not lose any contribution room overall.

You will need to put the money in for at least 3 months before you withdraw the funds.
Has the 25K been accepted? According to the CRA website it is proposed but nothing says it was ever implemented.

Quote:
Home Buyers' Plan (HBP)

The Home Buyers' Plan (HBP) is a program that allows you to withdraw up to $20,000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability .

Under proposed changes, for 2009 and subsequent years, withdrawals made after January 27, 2009, the maximum is increased to $25,000.
Service Canada is also still showing $20K

Quote:
Home Buyers' Plan

The Home Buyers' Plan allows eligible individuals to withdraw up to $20,000 tax free from their Registered Retirement Savings Plan (RRSP) to purchase or build a qualifying home.

Delivered by: Canada Revenue Agency (CRA)
Eligibility Information

The Canada Revenue Agency considers the following persons first-time home buyers:

* persons, including former homeowners, who have not owned a home they occupied as a principal place of residence at any time during the four-year period before the date of withdrawal of funds
* disabled persons acquiring a more accessible home
* persons acquiring a more accessible home for a disabled person related to them by blood, marriage, common-law partnership or adoption
* persons providing funds to a disabled person related to them by blood, marriage, common-law partnership or adoption, to build or purchase a more accessible home
* other criteria may apply
The information form from the CRA website also says $20K so I don't think the 25K was implemented.

Quote:
What is the HBP?

The HBP is a program that allows you to withdraw up to $20,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home.

The home can be for you, or it can be for a related person with a disability. If the home is acquired by a person with a disability or for a related person with a disability, one of the following should apply:

* it is more accessible to that person than his or her current home; or
* it is better suited to that person's needs.

As an HBP participant, you can acquire the home for the related person with a disability, or you can provide the withdrawn funds to the related person with a disability to acquire the home.

You do not have to include eligible withdrawals in your income, and your RRSP issuer will not withhold tax on these amounts. You can withdraw a single amount or make a series of withdrawals throughout the same calendar year, provided the total of your withdrawals is not more than $20,000. If you buy the qualifying home with your spouse or common-law partner, or with other individuals, each of you can withdraw up to $20,000.

Note
Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year. For more information, see the following section

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.

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