If I was going to buy a house (my first house) and I wanted to use my RSPs (Registered Savings Plan) for a downpayment, I can do so without tax penalty if I pay it back at a certain rate.
My question is, if I had , picking a figure off the top of my head, $20,000 in my RSPs AND I had $20,000 in available cash, is there a tax advantage to using my $20k from my RSPs and immediately repaying back my RSPs with the other $20k cash I had lying about. Or should I just leave my RSPs alone and use the other $20k I have?
The reason I ask is because I’ve been told that if you do use your RSPs as a downpayment it’s wise to get a bank loan to replace your RSP cash as soon as possible. I can’t figure out why this is the case though…
That’s a good question. I think I’ll call my sister the accountant and see if she has any good answers. (May take a couple of days, so don’t give up on this thread too soon
I’m sure featherlou’s sister will give a better answer but I’ll take a stab at it for now.
Repaying your RRSP right away means you immediately replace captial that is growing tax free. You also get to write off any interest you pay on the loan you took out to repay that RRSP. If you just suck your RRSP dry and then make repayments you only get those little chunks you pay back growing tax free.
When you repay your RRSPs you don’t get to take the deduction again. Wouldn’t that be a sweet deal though?
I took some cash out of my RRSP for a down payment so I have a little experience here. I’m not making any repayments to my RRSP tough. I simply claim the amount I was supposed to repay each year as income instead.
I save my money inside my company now instead. I’ll be doing RRSP contributions again soon though.
