Why do these Reddit users focus on the "40% marginal tax bracket"? How did they calculate it? Assume that we're in Ontario so that we can work with Ontario's provincial tax rates.

35K at 5% for 90 days gives you 35 000 x 0.05 x (90/360) = $437.5.

A Note On Advice From Realtors : PersonalFinanceCanada

This is actually a very good strategy but I think the realtor doesn’t understand the specifics. It can be done without debt which is even better. Let’s say you do borrow for this strategy, you need to;

  1. Be eligible for the home buyers plan.
  2. Don’t put more than the maximum in your RSP for said HBP ($35,000)
  3. Be close to tax time so you can get the tax refund quickly.
  4. Be in a high tax bracket (preferred)

So let’s say you borrow 35k at 5%, you put it in an rrsp savings account. After 90 days, you withdraw the 35k via HBP, payoff the line of credit with interest. Later on you get the tax deduction. Suppose your in a 40% marginal tax bracket, that means your tax refund would be 14k. So you are left with no extra debt and 13k in your hands that you did not have before once interest is paid.

Once again, this is only really worth it if your in a high income tax bracket.

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I think you've outlined the strategy well. Better yet, if you have the $35k downpayment, you can still benefit by putting it in your RRSP and using the HBP. Using the 40% marginal tax rate, you effectively gross up you $35k to $49k without taking any additional debt.

Sure, you have to pay the $35k back into your RRSP, but this should be manageable. Also, if it's not, the annual amount owed is just converted into income and taxed. Pretty reasonable for those with a sensible head on their shoulders.

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The plan works regardless of your bracket - it is one of the most tax-effective things you can do if you are planning on buying your first home, and are looking to maximize your down payment.

Effectively you take a deduction from your income tax this year, and only need to contribute to your RRSP over the next 10 years [Well, really you contribute today, but then use that money in the short term as additional down payment]. At the end of the 10 years, your money will be in an RRSP, gaining value without paying annual taxes, and you will only pay tax on it when you take it out [hopefully in retirement], so that tax-deferred growth will continue to magnify.

But the impact of the plan makes the most sense when the deduction saves you the most in taxes possible. The more income you earn in Canada, the more tax you pay. And if you earn little enough, you pay no tax. So if your income is < 10k, you probably pay no tax, and therefore an additional RRSP deduction doesn't help you. And if your income is > 300k, you might pay >48% tax, so the RRSP deduction really helps you. Of course, if you earn <10k you probably aren't in a position to save for a house, so the general rule of thumb that 'this is always good' is still applicable.

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