“Almost one-half of Home Buyers Plan participants paid less than the full required repayment amount in tax year 2011.”

“Almost 1.8 million Canadians participate in the Home Buyers Plan (HBP), according to the latest available numbers from CRA but here’s the interesting part…
We’ve long operated under the assumption (based on past StatsCan research and CRA data) that 25-35% of people don’t make the annual repayments required by the plan. It turns out those numbers are a bit shy.
CRA told us last Wednesday that almost one-half of HBP participants (47%) “paid less than the full required repayment amount in tax year 2011.” (2011 is the latest data available.
That means almost 1 in 2 HBP users paid income tax on the RRSP money they borrowed and didn’t repay on time. (The amount of any repayment shortfall is considered taxable income, and tax is assessed on this amount at the individual filer’s marginal tax rate.)
That’s not to mention the tax-deferred investment gains they’re forgoing by not leaving the down payment funds in their RRSP. This lost growth directly impacts their income in retirement.
Such is the price that many young buyers are paying to own a home sooner. Is it worth it?”

Rob McLister at Canadian Mortgage Trends, 5 Feb 2013

“Our unhealthy obsession with home ownership is never more clearly seen than it is in a well-used federal government program called the Home Buyers’ Plan.
The HBP allows first-time homebuyers to withdraw up to $25,000 from a registered retirement savings plan to help cover a down payment. Somehow, we’ve decided that houses come before retirement savings. That’s a mistake and it needs to be corrected by winding down the HBP.
Prepare for hysteria if this is ever seriously discussed by the federal government. “There’d be a deafening outcry from the real estate industry, mortgage industry, first-time buyers, and many politicians,” Robert McLister, editor of the Canadian Mortgage Trends blog and a mortgage planner, told me in an e-mail. “First-timers have already taken the brunt of recent rule changes, so canning the HBP would be viewed as war against young homeowners.”
This is true, and here’s why. The idea that everyone should own a house is a foundational and uncontested financial principle here in this country. The massive rise in house prices since the mid-1980s has convinced almost everyone that there’s not only a social and economic benefit in promoting home ownership, but also a financial one for owners.
If you’re buying in some cities at current prices, that latter point is debatable. …
Through the HBP, the federal government is telling us that buying a house is important enough to scoop down-payment money out of your retirement savings. Why is Ottawa handing out bad financial advice?”

Rob Carrick at The Globe and Mail, 4 Feb 2013

The spec mania in RE has been fuelled by those who have overextended themselves, using any means available, to buy properties at preposterous price levels, in the certain belief that prices can only ascend further.
There is now evidence from numerous quarters of debt limits being reached.
– vreaa


From the comment section at the G&M:

“Wrong on this one RC.
– best decision ever for us, able to purchase our first house several years earlier
– have steadily paid back the HBP so the money is not out of service forever
– house steadily appreciated faster than our RRSP by several hundred thousand $”

– Big Dan 5 Feb 2013 6:03am

Yeah, looks great on the way up, don’t it? – ed.

17 responses to ““Almost one-half of Home Buyers Plan participants paid less than the full required repayment amount in tax year 2011.”

  1. I’m not so sure about eliminating it completely but perhaps the tweek should be to reduce the repayment period to 5 years from the former 15.

    Anyone can take money out of their RRSP to buy a house. It’s the with holding tax rate on $25,000 (30%) that can be a little unfair. If one family member is not working it could actually make a lot of sense to take money out of the RRSP as they won’t actually owe tax on $5,000-$10,000 at the end of the year.

    So shrink they payback to 5 years to make people think a little bit more about the impact of the tax of $5,000 instead of $1,666.
    That should make everyone happy.

    Unless we’re going to switch to US rules where an IRA/401k withdrawal prior to age 59 means an extra 10% in tax on top of the income impact…..if people need/want the money and the house…….they’re going to do it, even if it’s stupid.

  2. “That means almost 1 in 2 HBP users paid income tax on the RRSP money they borrowed and didn’t repay on time. That’s not to mention the tax-deferred investment gains they’re forgoing by not leaving the down payment funds in their RRSP.”

    – at the same time, one could argue that this money could just as easily be pissed away day trading this rigged stock market of ours. Many novice “investors” are probably better off putting the money into the lesser of two evils, namely RE.
    – while it is likely a bad sign that only 1/2 of home buyers are paying the money back to their RRSPs, I don’t really think the situation is as black and white as some of these commentators are suggesting. These HBP users would have rec’d tax breaks in years past which will offset any tax owing on funds withdrawn from their RRSP’s. In addition, users who played their cards right may have already realized significant tax free gains on the funds invested in the RRSP. Having said all this, I am not sure how this all plays out for those who borrowed to make the RRSP contributions in the first place. Umm, yeah…chew on that for a sec…
    – IMHO, users should be able to do whatever the f*&k they want with their RRSP funds.
    – doubtful the feds will ever consider winding down the HBP (remember, that is bad for business). If anything, they’ll increase the limit from $25k and stretch out the repayment period (in addition to other stimulative measures they’ll likely implement in short order to help out the first timers). That, you can take to the bank.

    • Had you invested your money in the Canadian stock market in 2003, it would have grown 2.4-fold by the end of 2012 (assuming reinvested dividends). Had you invested it in 1993, it would have grown 5.8-fold. And had you invested it in 1983, it would have grown 14-fold. Please explain how that is “rigged”.

      • Examples are legion, El Ninja… Here are just two… [Nanex: APPL:US]



        [NoteToEd: Participants aka “retail” who can’t afford a CrayXC-30, a CRS-3 trunk and exchange co-located servers are operating at a distinct disadvantage. And let’s not talk about ‘Expert Networks’.]

      • This is actually a pretty complicated debate.

        Just so we’re clear, we are not talking about investment returns of years past. Sure, over the last 2-3 decades the stock market has been a fabulous place to be invested for the very few that had both the nerve and wherewithal to buy and hold the right stocks (while sidestepping all the major market crashes), but many would argue that RE has been too. FWIW, I’m not so sure those tax deferred gains are as safe a bet going forward as the writer of that article is assuming.

        In my experience, many novice traders of today’s generation also compound their problems further by getting repeatedly whipsawed around by the market and over trading their stocks (it is significantly more difficult and costly to flip houses). With the fees so low, access to the market so easy and the universe of things to trade so vast, this is practically a given. IMHO, many of these new trading vehicles are not suitable for the do-it-yourself novice investor in the first place. Many financial experts don’t even know how many of these new fangled ETFs and so forth even work, but still go ahead and recommend them anyway. As if this wasn’t bad enough, fraud and corruption are more widespread and rampant today than they have ever been in years past.

        Given all this, how could one argue with a person who has seen their stock portfolio grow 2,3 or 5 fold in recent years and now wants to put some of that money to work in the RE market?

      • Ralph Cramdown

        Nem, I think I understand the issues in HFT, but I don’t understand why I should care. If I was a weak hand day trading with little capital and tight stops, I suppose I’d be bummed at getting stopped out all the time. But my horizons are longer, my pockets deeper, and I’m so cheap that I usually won’t even cross the spread (I think that makes me a “provider of liquidity” in this month’s vernacular).

        As long as this and other bogeymen are keeping the scared masses in fixed income, thus keeping my yields and price/cashflow high, what’s my downside?

      • UBCghettodweller

        Nem, the mention of Crays and trunk lines in the same sentence made my nerd-bits go all aquiver.

    • HFT is just the tip ‘o the iceberg, Ralph…


  3. Home Buyers Plan is a great tool and most folks do well with it. Dumb and dumber folks don’t….no amount of requlation will change that.

  4. I think we should keep it, but the rules should change such that If you do miss your yearly quota once, you are then taxed on the full amount of the remainder that year. Would be a great motivator, also makes more sense if the reason you couldn’t pay that year was due to unemployment in which case the actual tax rate would be much much lower :). For some people like me, contributing to the rrsp directly at source, really is the only way to get some cash together… (I calculate it in such a way that my take home pay only varies by a few bucks, then every year I adjust depending on raises or what I feel I can manage)

  5. Slightly off topic but Peter Julian (NDP) had a proposed a bill to increase the limit for HBP a few years back. I emailed him and explained why I thought this wouldn’t achieve his objective of making home ownership easier and more affordable. He responded to my email and gave me his Ottawa office number.
    Flash forward nearly 15 months later and there Peter was at my door canvasing for the Federal election. I told him I emailed him about the HBP and he remembered my email and my objections well. He said I was the only person who ever had objected….I told him those other people were self-serving and my response was “don’t do it…don’t do it, please take a step back and think about what this will and won’t do.”
    Maybe he listened? Not sure what happened to the bill but I’m glad the law hasn’t changed, hope my input worked, even if only a little. Peter’s got one hell of a memory.

    • Interesting… I don’t see much signs there’s much policy direction in any of the parties on how to deal with housing if prices should fall substantially. Given the massive incentive to continue to subsidize home ownership I’m not optimistic you’ll get much on the record from any mainstream party.

      • As we’ve all discussed here before, the exact stripe of the party in power isn’t going to make much difference to the unwinding. Sure, the rhetoric and blame laid will be different, and the rearranging of the deck-chairs will vary by party, but the big story arc will be the same.

  6. According to David Foot (author of boom, bust and echo) a Canadian boomer is one of the 400,000 born between 1947 and 1966. This means that the first of the boomers turned 65 in 2012.

  7. “Somehow, we’ve decided that houses come before retirement savings.”

    And this is the problem!Census Results clearly show the Canadian demographic is unfavorable for the young people and they should think first about their retirement. Why would you enter to a housing market when there is still a strong generation of baby boomers, who clearly profitted from the steadily increasing housing prices and are able to put additional pressure on the market with their money?

    • Exactly John. And why would anyone buy today when the best of the real estate gains have already been consumed by a prior generation? It strikes me as obvious that younger people need to wait this out and let the market absorb some declines before thinking seriously of participating.

      The Boomers will give back some of their outstanding profits in the form of a more equitable distribution of wealth by allowing the market to make a correcttion back towards more fundamental values.

      One generation should not benefit so excessively to the detriment of those who follow. The refusal of younger folks to participate in the orgy of housing is what I view as a reprisal and answer to an entitled generation of Boomers who are now going to be reaping the whirlwind of their own prior excess.

      The market will correct past excess.

      • Yeah, exactly; Agreed.
        Over the last few years, a small fortunate minority have had their future retirements funded by the commitment of (younger, local) buyers to pay off massive amounts of debt, with their own earnings, for decades to come.
        As you say: “One generation should not benefit so excessively to the detriment of those who follow.”

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