The stock market is in turmoil, mutual fund returns are unnervingly dismal and Canadians are left wondering how best to invest their Registered Retirement Savings Plan (RRSP) contributions before the March 1, 2001 deadline. Perhaps it's time for more Canadians to direct RRSP contributions towards home ownership through the federal Home Buyers' Plan.

When double-digit investment returns were commonplace, many felt that buying real estate was the slow way to make money. Suddenly, real estate is looking good again.

Up to $20,000 in RRSP funds may be withdrawn to buy or build a home under the Home Buying Plan (HBP) without losing that $20,000-space in the registered fund.

As long as the money is repaid within 15 years, according to Canada Customs and Revenue Agency (CCRA) regulations, the withdrawal is not considered taxable income and the RRSP remains intact.

First-time buyers Janey and Don Gordon of Winnipeg, Manitoba, both in their early 20s, decided to take advantage of CCRA's Home Buyers' Plan to increase the size of their down payment and reduce their mortgage debt.

"I had $6,000 in an RRSP and Janey had $3,000 and we put that towards a down payment," explained Mr. Gordon. "We had another $3,000. With everything, it cost $13,150 (for) lawyers, insurance, down payment.

Moving costs were pizzas and beer for our friends."

Mr. Gordon was inspired by a friend who bought a home with RRSP funds.

"He did it a lot wilder. He borrowed money from the bank for RRSPs and then put that towards a house. You don't have to pay any interest on this money (withdrawn from an RRSP) and so it is one of the rare things you can take advantage of," said Mr. Gordon who acknowledged the Home Buyers' Plan can be confusing. "You just have to watch carefully. You have to have your money in an RRSP for 90 days.

"Our (mortgage) payments are just like we're paying rent. The cash crunch is for furniture and everything. We're not going out and buying everything. We're just grabbing a few couches from the parents."

The couple paid about $85,000 for a well-kept bungalow with a finished basement and big yard. "We did not want to buy a house that we would have to spend $10,000 or $15,000 fixing up. We wanted to move in and not have to worry," said Mr. Gordon. "Our friends are in awe. They are looking at doing this too."

The HBP is not limited to first-time buyers, one-time participation or buying for yourself. Beginning in 1999, HBP was expanded to cover:

• Repeat participation, if the previous HBP withdrawal is fully repaid at the beginning of the year that a new HBP participation occurs.

• Canadians with disabilities who want to use the HBP to buy or build a more accessible home.

• Individuals who wish to buy or build a home for a related person with disabilities or to give the HBP funds to the person with disabilities to personally buy or build a more accessible home.

For information, contact CCRA, your RRSP issuer or your accountant. Make sure you get the details right. Remember, CCRA (previously known as Revenue Canada) is notoriously unforgiving.

For more articles by P.J. Wade, please press here.

Published: February 13, 2001

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