Allowing for “intergenerational” loans of RRSP funds from parents to their adult children buying a home would help “close the gap” for young Canadians, according to a new proposal by the Canadian Real Estate Association (CREA).
In its 2018 Pre-Budget Submission to the House of Commons Standing Committee on Finance, CREA proposes a series of changes to the Home Buyer’s Plan (HBP), which currently allows home buyers to withdraw up to $25,000 from their own RRSPs to fund a down payment on a home, as long as the money is paid back into the RRSP later.
The CREA suggests increasing this limit to $35,000 per buyer, and adds that there needs to be a formalized method of transferring wealth downwards between generations in order to help out young buyers.
A survey by BC Notaries in January reported that more and more first-time home buyers are turning to their parents for help with a down payment, rather than being deterred from entering the market.
CREA’s submission states, “As many parents are already ‘loaning’ their savings to their children, a formalized mechanism which allows for the transfer of RRSP savings would help not only increase the available down payment and reduce the amount borrowed, but also limit risk to the lender… The accumulated savings of a parent (up to the maximum HBP withdrawal amount) could be accessed through an intergenerational loan, and reimbursed to the parents’ RRSP in accordance with applicable conditions. Both parents would be eligible to withdraw from their RRSPs, and loan funds to whom they had previously claimed as ‘dependents’ on their Income Tax Return.”
It adds, “Extending the HBP is a compassionate and fiscally responsible way to help modern Canadian families finance the purchase of a home, and also help close the gap for young Canadians.”
In a Canadian Press article, UBC professor Tom Davidoff responded to the proposal with a warning that it might not have the intended result, and could help wealthier families while penalizing less-wealthy ones.
He said, "Part of what you do when you subsidize housing in any way is push up the price, which just helps property owners rather than buyers."
Davidoff suggests increasing the tax burden on property ownership as a way of reducing home prices instead, including possibly limiting the tax-free gains made on the sale of a principal residence.