The Federal Government has announced plans to “solve the housing crisis” as part of the proposed budget this year, plans directed in part to first-time home buyers. Like many such proposals, it’s (a) complex and (b) not for everybody who is buying a home for the first time.
Here is what is in the budget, which still has to receive royal ascent:
• An increase in the maximum withdrawal limit from Registered Retirement Savings Plans (RRSP), from $35,000 to $60,000
• An increase in the grace period before beginning to pay back that withdrawal — no payments for five years instead of two years, so what is withdrawn in 2024 doesn’t require any repayments until 2029
To make it easier for first-time buyers to get into the market, the latest government proposal — called the Home Buyers Plan — could work in tandem with the First Home Savings Account (FHSA) introduced last year. In it, Canadians can make tax-deductible contributions up to $40,000 with tax-free growth for 15 years and tax-free withdrawals.
Combining the two plans could enable first-time home buyers an opportunity to fund their down payment with as much as $100,000 — $60,000 (RRSP) plus $40,000 (FHSA). For a couple, that could be $200,000, all with pre-tax dollars.
Complex?
One of the often-overlooked restrictions is that the RRSP funds must be in the account for 90 days before anything can be withdrawn. That’s one reason why first-time home buyers might be wise to seek financial advice before proceeding.
How much will it help “solve the housing crisis?” It might be among the solutions, of which there are many.