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Down Payment Planning:

Examining RRSPs, TFSAs, and FHSA

Michelle McNally courtesy REALTOR.ca
utting together the funds for a down payment often takes time and a solid strategy that goes beyond tucking a
few dollars away each month. Luckily, Canadians have access to a number of investment savings accounts that
Pcan optimize their savings towards homeownership.
Unlike a standard savings account, an investment account offers specific tax and interest benefits a regular account
won’t have, making an investment savings account more advantageous when building for a down payment. For
instance, Jessica Moorhouse, a millennial money expert and accredited financial counselor, explains the longer you
plan to save for a down payment, the more appropriate it is to invest your money, rather than keep it in an account
that’ll gain very little interest over time.
“If you just leave it in savings, that money will become less valuable over time since there’s no bank account in Canada
offering interest rates that keep pace with annual housing price increases,” says Moorhouse. “To combat this, you can
invest your money to ensure it does keep pace or even outpaces future real estate price increases to maintain the
value of your saved down payment.”

Moorhouse, along with Natasha Macmillan, business director of everyday banking at Ratehub.ca, walks us through
the need-to-knows about Canada’s most common investment savings accounts.

Registered Retirement Savings Plan (RRSP)
An RRSP is a retirement savings plan registered with the federal government.

When you contribute to an RRSP, those funds are exempt from tax, capital gains, and dividends, so long as the funds
remain in the plan. You usually have to pay tax when you cash in, make withdrawals, or receive payments from your
RRSP.
The amount you invest into an RRSP reduces your net income, but lowers the income tax you pay, therefore offering
a tax break. However, RRSPs have an annual contribution limit, meaning you can only invest so much income into
them per year.
“What it actually does is allow you to lower your taxes while saving for a home. It has the overall impact of reducing
your yearly income through your contribution,” explains Macmillan. “A caveat here though is your contribution is lost
with each withdrawal, and it doesn’t allow you to do tax-free withdrawals with the exception of the Home Buyers’ Plan.”

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