What the federal budget means for your financial plan

Okay, it’s on the front page of all the papers and your favourite news apps: the release of the 2019 federal budget. Planswell HQ has been humming all morning with conversations about what the federal budget will really mean for Canadians and their personal financial plan:

We’ve rounded up the 4 biggest takeaways that may affect your financial plan:

Can’t afford to buy a home? Well, the government may be willing to take on some of the cost. The new CMHC (Canadian Mortgage and Housing Corporation) incentive plan will include a shared equity mortgage program in which CMCH would be taking up to a 10% stake in a newly constructed home, or 5% of an existing home. Here’s the catch; this is only eligible for families with less than $120,000 in annual household income and it will let them borrow no more than four times their annual household income. This means that the limit on a home purchase with this program will be roughly around $500,000. You’ll hear more about this program in the next few months as it is expected to start in September 2019.

First-time homebuyers can now take out up to $35,000 from their registered retirement savings plan (RRSP) for a down payment, without having to pay the tax on that withdrawal. This is up from the previous amount of $25,000. So how would this work? Say you max out your TFSA and want other tax free options to grow your money, but you know for sure home ownership is in your future. Stashing money away into your RRSP with the ability to take it out tax free for a down payment can set you up for an efficient down payment strategy. But, don’t forget about the fact that you’ll have to put that money back into your RRSP over 15 years to avoid your withdrawal being added to your taxable income.  The time period is not being extended, so now Canadians would have to pay back a maximum of $35,000 – instead of the previous $25,000 – over the same time period.

The federal government will now allow retirees to purchase an advanced life annuity where the commencement of the annuity may be deferred until age 85. This annuity can be purchased using certain registered retirement savings plans. An annuity is when you give a lump sum of money to a company (usually an insurance company) and they give you a monthly amount for a pre-specified term (usually the rest of your life). The tax rules usually enforce that an annuity that was purchased with registered funds to begin after the person turns 71. This will be changed to allow seniors to purchase an advanced life deferred annuity under some registered plans – and the commencement can be deferred until 85 years of age. Advanced life deferred annuities will be allowed under a Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Deferred Profit Sharing Plan (DPSP), Pooled Registered Pension Plan (PRPP) and a Defined Contribution Pension Plan (DC RPP).  

The budget has proposed lowering interest rates for Canada Student Loans. For example, the floating interest rate will be decreased from prime plus 2.5 percentage points to prime. In addition, interest will not be charged until  6 months after students graduate from university or college on federal student loans. The government says this change is estimated to help over one million students save $2,000 in interest rates over the course of their loan repayment plan.