The federal budget was announced today in Canada and the minister of finance, Jim Flaherty appeared on the CBC’s The National tonight to respond to questions from Canadians. One very specific question caught my attention; an e-mailer asked if the federal government would ever consider making the interest paid on a mortgage tax deductible.
Flaherty said flat out, “No,” and I think it caught Peter Manbridge a little off guard because he thanked him at the end for Flaherty’s straight answer and even stumbled a bit like he was at a loss for words.
Here’s the clip:
I would love for mortgage interest to be tax deductible and many home owners would as well. My biggest concern surrounding that would be the income loss for the federal government and what it would mean against our health care or education. Flaherty points out that capital gains on your primary residence is tax free in Canada, unlike the United States that has very confusing laws surrounding capital gains and the sale of your house. That’s a conversation for another day. For now I want to highlight the new savings plan announced in today’s budget.The federal budget created the first government sponsored savings plan since the RRSP was created in the 1950s. Canadians will be able to save up to $5,000 a year in a tax-free account and will be able to withdraw whatever they have saved without having to pay capital gains for any expense.
This is a particular boon for first-time home buyers who up until now have had to rely on non-registered savings or money inside an RRSP. Non-registered savings obviously had their disadvantages in that any gains were taxable. Money inside an RRSP had the disadvantage that you could only withdraw $20,000 per person on title and it had to be paid back within 17 years or be counted as income.
The new savings account will allow Canadians to carry-forward any unused portion indefinitely and any withdrawls from the account and subsequent deposits will not effect their maximum yearly contribution. For example, Mr. Smith withdraws $20,000 to pay for a home renovation. In the first year he decides to recontribute $3,000 back into the account. He is still able to deposit the full $5,000 yearly maximum. This of course is if he ever decides to recontribute at all – there is no stipulation you must recontribute to the account.
Canadians 18 years and older are able to open one of these accounts and every Canadian should with the mind to use it first to buy a home.
