The trick: using tax refunds as a down payment
Imagine turning $0 in RRSP savings into a $20,000 down payment in just a few months—with the blessing of the tax authorities. It's not magic, but a legitimate financial strategy that allows you to buy a property without years of saving. By smartly leveraging RRSPs, the HBP (Home Buyers' Plan), and temporary credit, you'll get a nice boost toward homeownership.
The core strategy involves using a temporary bank loan to generate a tax refund, which will then serve as your down payment.
There's nothing shady or illegal here—just smart use of RRSPs and the HBP. But to fully benefit from these programs, you must genuinely buy a home and follow a few rules.
Steps:
- Borrow money from your bank.
- Deposit the amount into an RRSP for at least 90 days.
- Collect a tax refund to boost your down payment.
- "HBP" by signing for your house and paying off the initial bank loan.
- Gradually save in your RRSP.
1 - Borrow from your bank
Many people know the HBP as a means to withdraw existing RRSP funds for a home purchase without tax consequences, but this strategy is different. As Richard-Eric Nantais, Investment Advisor at National Bank Financial, explains: "You first temporarily borrow an amount from the bank to invest in your RRSP." A sum of $60,000 is wise, as it matches exactly the government limit for an HBP withdrawal. For couples, this doubles to $120,000. Naturally, this strategy requires two conditions:
- Having enough unused RRSP contribution room.
- Presenting a strong credit profile to obtain this loan (you may use an existing line of credit). The borrowed amount will be repaid at step 4.
2 - Deposit the amount into an RRSP for at least 90 days.
To use the HBP—the cornerstone of this strategy—the funds must remain in your RRSP for at least 90 days. This RRSP contribution reduces your taxable income by $60,000. Practically, as Richard-Eric Nantais notes, "if you earned $110,000 this year, you'll be taxed only on $50,000."
3 - Collect a tax refund to boost your down payment
The tax refund generated by your RRSP contribution becomes your additional down payment. In our example, with an approximate tax rate of 40%, the refund would be around $20,000. For couples, this amount could reach $40,000.
4 - "HBP" by signing for your house and paying off the initial bank loan.
The magic has limits: you must repay the bank loan! To proceed with the HBP, you need an accepted purchase offer. The amount withdrawn via the HBP will repay the bank loan. The only remaining debt is owed to yourself, as the HBP repayments will replenish your RRSP.
Be aware, HBP rules require taking possession of the property before October 1st of the year following the RRSP withdrawal. Ensure the transaction is notarized before this deadline, or you risk being taxed on withdrawn amounts—a potentially costly mistake. Another constraint: the purchased property must become your principal residence no later than one year after purchase or construction. If buying off-plan, confirm the possession date complies with these deadlines.
5 - Gradually save in your RRSP
Amounts withdrawn via the HBP must be repaid over 15 years. Each year, starting the second year after withdrawal, you must repay 1/15th of the amount. If you fail to repay the annual portion, that unpaid amount becomes taxable income.
Participating in the HBP thus commits you to saving for retirement—a valuable secondary benefit of this strategy.
Example timeline for a summer purchase
Here's an example timeline for a purchase planned next summer:
| Year | Date | Step |
|---|---|---|
| This year | Before November | Begin property search and prequalification |
| This year | Before December | Request loan for RRSP contribution |
| Next year | Before end of February | RRSP contribution |
| Next year | April 1st | File income tax return |
| Next year | May 15th | Receive tax refund (~$20,000) |
| Next year | June | Present purchase offer with preapproval |
| Next year | June | HBP withdrawal to repay initial loan |
| Next year | July | Sign at the notary with down payment |
| Following year | - | Start HBP repayments ($4,000/year for 15 years) |
This schedule respects all requirements: funds stay over 90 days in the RRSP, possession occurs before October 1st of the year after withdrawal, and you receive your tax refund in time for the notary signing.
