The Government’s recent decision not to appeal the back-pay windfall to their clerical staff may create an frenzy of real estate purchases, especially in the lower end housing units. If the recent decision affects you, please read this article carefully, it can save you thousands of tax dollars.

It has been published that the gross (pre-tax) back-pay could amount to $30,000. Of course if one takes this money into income in one year, it could cost you up to half in income tax. The first thing one should do is to look up last years "Revenue Canada Assessment Notice." This is the piece of paper that accompanies you tax bill or tax refund. On it, you will find the "top up" potential in your RRSP. In other words, it will mention just how much of that big cheque you are allowed to invest in your RRSP. That has a dual purpose. First, it will allow for a huge tax refund next year, and secondly it will give you the option of investing your RRSP immediately. Most of you who have topped up your RRSP with a bank loan know that you cannot invest your RRSP as you wish until the loan is paid off.

Those of you who do not own a house should immediately start looking knowing that each person, who qualifies as a first time buyer, may borrow up to $20,000 from their RRSP (tax free) for down payment purposes. Had you chosen to use cash for your down payment, you would have been taxed on the full amount of the settlement. Using your RRSP gets you that house with the same down payment only far less income tax to pay. You may also use your RRSP for closing costs such as legal fees, land transfer tax, appraisal fees, etc. I am suggesting you start shopping immediately, because supply and demand dictates price. With so much money in back pay in Ottawa, housing sales may soon skyrocket, and with the increase in demand, supply make take a back seat. When demand is high and supply is short, prices have a tendency to escalate.

Those of you who already have topped up your RRSP with a bank loan, should use your settlement to pay off the loan. Once paid, you may now use your RRSP as you wish, and not necessarily what the bank wanted. You may have wanted to use your RRSP prior to the loan being paid off, only to find restrictions for its use. Now that the loan is paid off, you may use that RRSP as above.

Remember to take into consideration that you must repay your RRSP over the next 15 years, at 1/15th of the borrowed amount per year. You calculate that amount into your budget, so you are not short at the end of the year. Should you fail to make the necessary payment to your RRSP, the amount of the missing payment will be added to your taxable income that year.

Interest rates are still low, and housing inventory is still plentiful, using your RRSP for down payment purposes will buy you a home with payments that are probably less than what you are presently paying in rent. You have worked your whole life with little chance to save for a down payment. Don’t squander this opportunity.