The federal budget doubles down on help for first-time homebuyers, but it also sets its sights on students, environmentally minded car buyers, low-income seniors and people worried about outliving their money in retirement.
Pre-election budgets are like that. Something for everyone. Here’s a rundown of the main groups who will be affected by personal finance measures in the budget:
Homebuyers, Part One: Under a new program called the First-Time Home Buyer Incentive, a fund administered by Canada Mortgage and Housing Corp. will provide 5 per cent of the cost of an existing home and 10 per cent of a new home through what amounts to an interest-free loan to be repaid when the property is sold. Key points: Users must have a down payment of at least 5 per cent — but less than 20 per cent — and a household income under $120,000. Also, the purchase price of the home cannot be more than four times the buyers’ household income. This effectively limits purchases to just below $480,000, which is close to the national average resale home price. The program is expected to start in September, with further details to come this year. For help buying homes in expensive markets such as Toronto and Vancouver, there’s …
Homebuyers, Part Two: The maximum tax-free withdrawal from registered retirement savings plans under the federal Home Buyers’ Plan rises to $35,000 from $25,000, effective immediately. Also, people will be able to use the HBP if they experience the breakdown of a marriage or common-law partnership and don’t meet the usual requirement of being a first-time buyer.
Postsecondary students: The budget provides a major break on interest costs for Canada Student Loans and Canada Apprentice Loans. Starting in 2019-2020, the interest rate on the overwhelmingly popular floating rate version of student loans falls from the prime rate plus 2.5 percentage points to prime. Fixed-rate loans fall to prime plus two percentage points from prime plus five points. Both current and new borrowers will benefit. Further relief comes from a move to eliminate interest charges on student debt during the six-month grace period on loan payments that starts when a student graduates. The government estimates total savings of $2,000 for the average borrower as a result of these measures, which apply to federal student loan programs.
Low-income seniors: People receiving the Guaranteed Income Supplement will be able to earn more money by working without having some of their benefits clawed back. Starting next year, the amount that can be earned without affecting benefits will rise to $5,000 from $3,500. There will also be an additional 50-per-cent exemption of up to $10,000.
Procrastinating retirees: Contributors to the Canada Pension Plan who are 70 and older and haven’t applied for their retirement benefits will be proactively enrolled starting next year. The government says about 40,000 people over 70 are missing out on CPP payments averaging $302 per month. Benefits will be applied at the higher rate that people get for delaying benefits until age 70 rather than starting them at the standard age of 65 or as early as 60.
People considering an electric car: An incentive of up to $5,000 is available to people buying electric battery or hydrogen fuel cell vehicles with a list price below $45,000.
High-income people who receive employee stock options: The tax break on stock options will be limited for employees of larger, mature companies (not startups), with an annual cap of $200,000 on stock options eligible for preferential tax treatment.
People interested in longevity insurance: The budget clears the way for the creation of advanced life deferred annuities that would kick in at the end of the year you turn 85. With an annuity, a lump sum investment is turned into a preset flow of cash for life. This particular annuity would be a way to ensure you don’t run out of money if you live to an advanced age.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, March 19, 2019