“”"You cannot deduct the amount by which the total of your contributions to an RRSP, during the 89-day period just before your withdrawal from that RRSP, is more than the fair market value of that RRSP after the withdrawal. “”"
http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html

So you’d have to wait at least 3 months, and be responsible for the interest during that period. I’m hoping this is what @Brian meant by the withdrawal being taxed in the next year. If you don’t wait 3 months it will be (and you’ll permanently lose the RRSP room).

I also have a problem with the line: “you avoid the risk of seeing the same house value increasing by 10% by the time you accumulate your cash down.” If housing prices are increasing 10% in a 6 month period then you should be extremely cautious, as the long term average is around 3%.

Also: “Since you are forced to reimburse the 40k ” isn’t quite correct. Instead of making payments you /could/ count the $2,700 as income each of the 15 years, and pay taxes on it. This might make sense in a year when someone isn’t working. Otherwise it’s likely better to contribute at least $2,700 to RRSPs over the year.

Oh, and it should also be mentioned that using the strategy you’re simply pulling the future rebates you would have received back to the current year. If you’re in a lower tax bracket now then you will be in 5 years you may end up costing yourself money, as the $2,7000 you contribute in 5 years will not generate any tax refund. Then again if you’re using it to avoid CHMC fees it might be a wash.

If you can make the downpayment without an RRSP loan, or without withdrawing from your RRSP, then by jove, go ahead. But for this option, it is good for two reasons – 1 – you get to buy a property before a market jump if you think there will be one and 2 – it forces you to put money into your RRSP in the coming 15 years to repay your HBP contribution.

For example: Borrow 20K. You’re in a 40% marginal tax bracket, and you get an 8K refund… You use the 8K as the downpayment, and the 20K from RRSP loan stays invested. THEN, you take the 20 K out and pay off the loan and voila, your downpayment was created out of thin air! That’s in one of the couple examples given above. EXCEPT, if this strategy is employed, you are technically withdrawing the RSP and it becomes taxable. So you use the 8K as a downpayment, but next tax filing year you’ll owe 8K (assuming a 40% MTR)…

I hope that clarifies it… That is exactly what the above “RRSP loan switchback technique” is doing…

why would it be taxable the next filling year? you are not withdrawing more money than the HBP, so there is no taxes to be paid on the following year?

Can you please explain your thoughts?

A financial planner from Quebec

TFB

What about the 40K RRSP loan? Are we not increasing our debts?

Not really. In fact, when you purchase your property, you are allowed to withdraw money from your RRSP (once withdrawn, you are not forced to use it as cash down). Then, you pay off your RRSP loans. The only cost of this technique will be the interest charged on the loan between the moment you contracted the loan and you pay it back.

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Please don’t make this error people.

You’ve forgotten to mention an additional future cost – that is, reporting the RRSP withdrawal for tax purposes come the next tax year … So that $7,600 (in the 38% tax bracket) that you’ve used for a downpayment will have to be repaid when it becomes taxable the next filing year.

Any other questions, send me an email – I’m a financial planner in the province of Ontario.