Dr. Garth (AI version)

Time to fire up the ChatGF bot thingy. The following questions are from (presumably) real people, since no AI creation would spend time on a pathetic blog with a canine fetish. Similarly, the responses are authentic, and worth every cent that you have paid to read them.

So here’s Tom, with an old query that suddenly seems new again.

Just wondering if higher interest rates now make it more attractive to fund a mortgage through an RRSP. It didn’t make much sense with low rates, but now?? Hmmmm

Say $300k?? RRSP and other investments still fine so not all eggs in one basket.

While mortgage rates were 2% it made little sense to pull this off. But now with posted rates north of 6%, things have changed.

The rules allow one to hold the mortgage on a house (or other property, even a rental) inside a RRSP. Thus, you pay interest to yourself, not the bank or Harold the Mortgage Guy. In order to pull this off, an arm’s-length intermediary to set up a mortgage account is required, a self-directed RRSP and an understanding that some significant fees are involved. For example, the mortgage must be insured by CMHC. Of course you need enough capital to fund the thing.

Despite the efforts and costs, at 6% the benefit may now outweigh the costs. In fact, if you arrange this as a second mortgage, you can pay yourself (maybe) 10%. How cool would that be?

Next up is Doug. “Love your blog, dog pics, chiselled abs, and stalwart advice,” he writes. (Unlike ChatFake, we get Mandatory Suck-Ups.)

Couple questions about the FHSA: I own a seasonal property, but have rented my principal residence for 10+ years. Would I still qualify for the FHSA? If I transfer the funds from my RSP, does it count as a withdrawal from that account, and be a net neutral transaction? Or can I withdraw from my RSP without penalty and deposit it into the FHSA and get the tax savings?

If I don’t use the money in the future to purchase a house, can I transfer all the money (including tax free growth) back into my RSP and reap more tax savings based on that contribution? I appreciate all the sound advice you have given in the past, and look forward to future blog posts.

First question – maybe. It’s unclear if the CRA will consider a part-time home (cottage) to actually be a PR (since, for capital gains tax purposes, you can designate it as such). The rental is fine – no issue. The definition being used is this: “You, or your spouse or common-law partner (spouse) did not own a qualifying home that you lived in as a principal place of residence at any time in the year the account is opened or the preceding four calendar years.”

As for the RRSP transfer to a FHSA, it happens free of tax. But if you withdraw from the retirement plan before you contribute to the FHSA you’ll face withholding tax and a long wait to see the refund. So, don’t. If no house is bought with FHSA money, you can transfer it back to the RRSP. But no, Doug you greedy dude, it does not earn you another tax deduction. Sheesh.

“Mandatory thank you for everything!” writes Christine. “Seriously!! Recently thank you for breaking down the FHSA ”

Quick question – I am 99.9% sure this is the case but would love your confirmation. Contributions I made to my RRSP in 2022 ($15000) – I want to confirm that I can claim them in a different tax year? I had part maternity leave last year (so my 2022 income is lower) and this year will be on a second maternity leave starting in the summer but topped up until December (basically a full salary) so would like to claim more money in 2023 taxes instead.

My second quick question, is do we know for the FHSA if you only get the tax return in that year? Or can it be deferred as well like the RRSP? (This will impact where I put additional savings). My husband always maxes out his TFSA, RRSP and will max out FHSA when it can open in April ish. He also gives me some support to put more in my savings especially while on maternity leave – very lucky! Have a wonderful day and I can’t wait to see the daily doggo photo.

Spot on, Christine, and good thinking. Yes, a contribution made to your RRSP can be saved as a claim against earned income in a future year. Being on mat leave is an example. Or getting a promotion and income boost. Or retiring and commuting a pension with a taxable cash component. The more money you earn in a year the bigger the benefit of the RRSP deposit.

More good news – ditto for the FHSA. Contributions are also tax-deductible and they may similarly be saved and claimed later, if to your advantage. Unlike RRSP room, however, which adds up endlessly and can be used anytime in your life (before age 72), the FHSA carry-forward is just one year. Plus, the plan will expire in fifteen years.

Finally, 36-year-old Phil. More TFSA angst. But a nice MSU.

Thanks so much for your recent post, “How to play the FHSA”, which inspired me recently, and for your sage advice and rippling abs which inspire me long-term.  I’ve emailed in a long-winded fashion in the past — on two occasions you’ve graciously answered — so I’ll try to keep this brief…

With the the FHSA coming soon, but without the ability to maximally contribute to both, would it be wise to consider opening one up and switching my focus/strategy from my TFSA to the FHSA (for the tax benefits)?  Or is this simply sacrificing one focus to adopt another and complicating things unnecessarily? Thank you so much for everything you do.

TFSA contributions don’t gift you a tax break. But in retirement this sucker can generate routine income which is not only untaxed but will never count as income that could reduce government pogey payments. So, you need a fat TFSA. However, you’re three decades from the end of work, you want a house, and the FHSA will give you tax relief, tax-free growth and a taxless withdrawal to help get some real estate (that can give profits free from tax). Too sweet to pass up.

As a short-term strategy (the next five years or so), I would chunk your cash into the FHSA, trying to make the maximum contribution. You can always use the tax refund to feed your TFSA along the way.

Chatboy out. Amazons beckon.

About the picture: “When we fell in love with Truman (here 5 months old) our Vet was clear… Bulldogs were a perfect storm of health problems, pet insurance a must!,” writes Don, in Edmonton. “So with eyes wide open we embraced him in our lives for almost 10 wonderful years.  The Vet and Truman became close friends month after month, after month!!   Appreciate your daily wisdom and advice – it has helped keep our “eyes wide open” conducting our personal finances.”