The Home Buyer’s Plan. We all know what it is. Individuals who contribute to their RRSPs can withdraw up to $25,000 from their RRSPs when it comes time to buy their first new home. That money won’t be taxed as income on the following tax return; but the funds do have to be repaid in installments for several years until the amount borrowed is repaid.
All in all, the Home Buyer’s Plan is a good thing that helps first-time home buyers buy their first home, right? So why then, is The Globe and Mail not only questioning this program, but actually saying that it should be taken out of the home-buying equation?
Their biggest argument is that RRSPs aren’t really there to help people buy homes, they’re there to help people retire. And of course, when you withdraw from your RRSPs, that’s a significant amount that will no longer be there when it’s time to retire. This may be a good argument, and it leads into the other argument The Globe and Mail makes – the one suggesting that we’ve all become so house-hungry that we’ll do anything in order to own one. Even if it means borrowing against our future.
The idea that Canadians have become obsessed with home ownership is one that The Globe regularly promotes, and there may have been a grain of truth behind it when the mad rush was on during the 2010-2012 years. But now Canadians have clearly been pulling back (just look at the latest CREA numbers if you don’t believe us,) and the idea that you must own a home is one that does seem to be diminishing. What’s not diminishing though, is the fact that individuals who borrow from their RRSPs are continuing to fail to pay that money back.
A total of 1.8 million Canadians use the Home Buyer’s Plan in order to make some of their down payment. But according to the Canada Revenue Agency, 47 per cent of Canadians “paid less than the full required repayment amount in tax year 2011.” (The last year for which there are stats.)
This means that nearly half of Canadians aren’t paying back their RRSP amounts, which means that they’re not as prepared for retirement as they could be; and that they are being taxed on a considerable amount of money year after year (any money repaid to the account is not taxed for that year.)
So, should the government consider getting rid of the RRSPs?
Robert McLister of Canadian Mortgage Trends doesn’t think they will.
“There’d be a deafening outcry from the real estate industry, mortgage industry, first-time buyers, and many politicians,” says McLister. “First-timers have already taken the brunt of recent rule changes, so canning the HBP would be viewed as war against young homeowners.”
But that argument does go back to the fact that we’re obsessed with home ownership here in Canada, and it’s hard to disagree that there would be a great deal of backlash if the government were to get rid of one of their most important programs for first-time home buyers. But it also can’t be argued that some Canadians are doing a great disservice to themselves by depending on these accounts to help them buy a house, no matter what it means for their future.
So, what do you think? Is the Home Buyers Plan helping people the way it was meant to? Or is it actually helping consumers dig themselves a deeper hole – one they possibly won’t be able to climb out of come retirement time?
