We received surprising data last week from Revenue Canada on participation in the Home Buyer’s Plan (HBP).
That’s the program where “first-time buyers” can borrow up to $25,000 from their RRSP to use as a down payment.
Almost 1.8 million Canadians participate in the HBP, according to the latest available numbers from CRA1 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.2)
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.
1 An HBP participant is anyone who, as of the beginning of 2011, had any outstanding withdrawals from an RRSP under the Home Buyer’s Plan.
2 CRA states that this data “includes the most recent assessment as of August 31, 2012 for all individuals who filed a T1 tax return for the 2011 tax year. Processing for the 2011 tax year is not yet complete. Data represents approximately 97% of expected total returns.”
Rob McLister, CMT