I am retired, collecting a pension, CPP & OAS. I also have money in my RSP, which becomes taxable when I withdraw it. I purchased, for cash & a trade-in, a 2014 BMW SUV. Sale price was $39000. This vehicle is now coming up to the 4 year warranty & full servicing anniversary, which means it will no longer covered. I believe it is probably worth $25000 as a trade-in on a purchase price of approximately $50000 or so. I would now like to replace it with a newer model BMW SUV which will again be covered for servicing & warranty. My dilemma is - do I withdraw funds from my RSP & have my OAS clawed back or do I lease the new purchase?

  • 1
    Are you sure that you've provided all the necessary information? I don't know Canadian law, but I would expect your income to matter to this determination.
    – Brythan
    Apr 17 '18 at 1:38
  • Are you planning on keeping this vehicle for four years before trading it in? Apr 17 '18 at 1:52
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    Not familiar with Canadian tax laws, but if "money in [your] RSP is taxable when [you] withdraw it", then presumably it will always be taxable when withdrawn, and in effect you should simply view the "RSP pot" as being that much smaller. That's not to say you shouldn't think carefully about whether to use this pot or not (as opposed, say, to paying servicing bills) but you shouldn't let "having to pay tax on the withdrawal" be a determining factor.
    – TripeHound
    Apr 17 '18 at 7:03
  • 3
    consider buying a normal used car for say $3,000. you will save an incredible amount of money, particularly on insurance, repairs, upkeep.
    – Fattie
    Apr 17 '18 at 10:20
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    I remember years ago reading J Paul Getty's book "Being Rich" where he noted that you should buy things that appreciate in value and rent things that depreciate, adding that most people do the opposite, they buy their cars but rent their houses.
    – Norm
    Apr 17 '18 at 13:01

Any OAS clawback you might incur by withdrawing additional RRSP amounts, would certainly wipe out any ownership cost-benefit analysis comparing buying vs leasing. Further, you quite possibly would be drawing additional income at higher tax bracket than you normally would, so it isn't true to say that drawing RRSP's today is the same as drawing tomorrow - you want to use up your bottom tax brackets as much as you can, without going into new brackets.

A more complete answer would require knowing your full income amounts and any other tax impacts, but I would find it almost impossible that buying through use of RRSP-drawn funds is preferential to simply leasing and making payments over time.

Of course you could buy the car and finance, and still take out only small amounts to pay the loan over time. There would be little difference in your case vs the regular lease vs finance case. If you are anti-debt, consider that leasing is just another form of debt, and either way you end up paying interest for the use of someone else's funds.

All in all - just don't buy it in cash.


Presumably if you are retired you will be drawing down from your RRSP at some point, so the issue of whether to do it now or later becomes a cost benefit analysis. Assuming your income is unlikely to change in the future most of the variables cancel out and it becomes a question of whether you are likely to pay more on a lease over that period of time compared to the growth of whatever investments you are holding in your RRSP.

So the calculation should be (Additional cost of leasing a vehicle) - ($25000 * whatever rate your RRSP has been growing by historically).

*Note: this answer ignores the effects of reduced taxes on capital gains from dividends your investments may be paying out as the effect should be marginal.

  • This answer is incomplete as is it really sidesteps the specific Canadian tax impacts in play. Jun 28 '20 at 22:34

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