Canadian Personal Finance Blog

“They paid my loan off” is what a co-worker told me, when he purchased a new vehicle. I have given up telling my co-workers things about finance (they don’t listen much). I knew what that meant, but it took a while for him to figure out what that phrase meant.

What did the phrase mean?

• Whoever has taken over the debt from the other loan will add this to the new loan (debt) for this new vehicle. What might this include:
  • Penalties for ending the loan (or lease} early
  • The balance still owing for the previous vehicle. The vehicle may not be worth as much as the balance owing
  • Administration fees for closing the loan (for the new firm)
  • Other fees
• If the other loan was at a lower rate, you will be using the new rate of this new loan
• The vehicle you are purchasing is most likely not worth the “new” value of this new loan, but that is your problem.

My co-worker did finally figure this out, once he got all the documentation, which explained all the details to him. He was less than impressed that his loan was now larger than the actual value of his new automobile.

Strangely there was no mention of “Negative Equity”, which seems to be a phrase no longer used in the automobile sales world.

Negative Equity ?

Debts do not just “disappear” without someone paying them off (with very few exceptions). Remember that when buying large items.

Someone may have “paid my loan” but what does that really mean?

As most readers know my revulsion of Guest Posts, however, Sean Cooper is a friend of the site and has posted before.

Disclosure: This site (and I) have not been compensated for publishing this post. The opinions expressed are those of Mr. Cooper.

Buying a home is a major financial decision. If done right, it can be the single best investment of your lifetime. But the desire to purchase a home and actually buying one are two different things. Many of us would like to be homeowners, but what stops us is the down payment. Thankfully, the government will give you a little help. The RRSP Home Buyers’ Plan assists first-time homebuyers afford a home sooner.

Let’s take a look at what the Home Buyers’ Plan is and if it makes sense to pay it down sooner.

What is the Home Buyers’ Plan?

The Home Buyers’ Plan (HBP) is plan made by the government to make it easier for first-time homebuyers. Under the HBP, you can withdraw up to $35,000 from your RRSP to use for your down payment. (That’s $70,000 combined when you’re buying with another first-time homebuyer.)

The RRSP helps save up your down payment sooner because of the tax refund that you receive. Let’s go through an example to illustrate this. Let’s say your tax rate is 30% and you made a $10,000 RRSP contribution. In this instance you’d be eligible for a tax refund of $3,000 (30% X $10,000 = $3,000). That’s the equivalent of a 30% no risk return on your money. Not bad!

Also by borrowing under the HBP, you may be able to avoid paying CMHC fees thanks to your heftier down payment.

The HBP is a great program as long as you follow the rules. When you withdraw money from the HBP, you’re required to pay it back over 15 years starting in the second years since you borrowed the money. Any money you don’t pay back is included as taxable income and you lose the RRSP room forever. Ouch!

Some financial gurus are against using the HBP. They claim that you’re borrowing from your future self. While that may be true, if you’re buying in a city with high home prices like Toronto or Vancouver, the HBP may be the helping hand you need to get into the real estate market sooner rather than later. In these markets, it’s tough to turn down the guaranteed return you get with the HBP. Provided you use the HBP is a smart way and repay the money you borrow according the repayment schedule, it can be a wonderful program.

Should you Pay Down the Home Buyers’ Plan Sooner?

If you get a cash windfall, should you pay off the HBP sooner? It some cases it can make a lot of sense. As previously stated, you need to pay back any money borrowed from your RRSP from the HBP within 15 years. Using the example above, if you borrowed $10,000, you’d have to pay back $666.67 annually ($10,000 / 15 years = $666.67). But if you have the money, why not increase it to $750 annually? When you do this, you’d pay it back in only 13.33 years, almost 2 years sooner. After the HBP is fully repaid, any further money you contribute to your RRSP goes towards saving for retirement. This lets you take full advantage of the power of compound interest.

About the Author

Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.

After posting my taxes on Sunday, I was wondering how things would go with my return. I am currently in a reassessment for the previous tax year, so what would the CRA do about this?

It did not take long, as they replied on-line with a message asking for receipts for the tax year for the exact areas where I am being reassessed for the previous tax year. This actually makes perfect sense, to me. This process is called a pre-assessment, which seems to imply, they want to verify my claims before processing.

Given my previous year reassessment is still in process, I will include all the information from that process, just to be thorough. I am attempting to make the same claims that I am having reassessed, so it is better to give too much information, than not enough.

Remember, in these situations, always have a complete cover letter. The cover letter must identify the process identifier, and should inventory all the documentation you are sending.  I am also having my wife check what I am sending, it never hurts to have another set of eyes check things for you.

The only interesting part is that they are asking for receipts for my charitable donations, which has nothing to do with my reassessment. The value has gone up, but I am curious as to why they are asking for that as well.

What to Do?

I will be submitting them all on-line (for speed), and shall see what comes of this.

This is all part of the whole tax process, but does seem to be how this year is going for me as well (i.e. things that can get complicated, do get complicated).

Remember to keep those receipts too!

Thanks to my issues with my son’s Medical Credit claim, I have had an income tax quandary.

Given the initial assessment refused my son’s Medical Claim for his schooling to be a medical expense (for last tax year), I have asked for a reassessment. The bill for the initial refusal is not insignificant, however I am hopeful that we will prevail in the end.

Given I currently owe the CRA a significant amount of money, and my taxes are due, what to do?

First question: Do I do my taxes this year assuming my son’s schooling expenses are a medical expense or not, given the CRA has denied this for the past year? My call is that I will try to claim it this year, assuming we prevail with our re-assessment. If this thing backfires, I assume I am going to have a world more problems with the CRA, but let’s remain optimistic.

Next question, given I should be getting a refund from the CRA, should I file before I hear about the re-assessment results? If I file, with no resolution, the CRA will simply take my refund to pay my “debt” to them.

1. If the reassessment ends up against my claim, I receive whatever is left from my refund, and the CRA is paid
2. If the reassessment ends up for my claim, and the CRA has already taken their “payment” I must then ask for my money back, which will mean delays and more paperwork.

We decided to simply file and see what happens. Currently my life is a bit chaotic (to say the least), so it would be better to tie off loose ends before things possibly go pear shaped.

Better to Act Sooner

Given I may be very distracted soon by other issues, it is better to file my taxes, and let the CRA decide how things will transpire.

Medical Expense Resources

Here are a few of the articles I have written about if your child has a valid Disability Tax Certificate (DTC), how you can claim their training or schooling as a medical expense.

• Medical Expenses and Taxes
• Disabled Children School Fees Medical Credit
• Medical Tax Credit for School Costs Template
• CRA and me: Assessment Excitement

Going Pear Shaped: An English colloquialism meaning things going very wrong.