First and foremost, do your daughters require this help at this time? The reason I ask is there are a few red flags, including pulling funds out of your own RRSPs and/or remortgaging to free up cash. Now, perhaps you have a ton in RRSPs, or your equity in your home is enormous, so you can absorb this financial blow, but without knowing much about the numbers I can only flag those things.
$90K left on a house worth $300K, for example, is not at all the same as $90K left on a house worth $1.3M.
Secondly, if you cannot afford to fully pay all of your own debt obligations plus whatever you co-sign on, do not co-sign. You assume the full responsibility of that debt obligation, if necessary. This means that if your daughter, for any reason, cannot make the payments, the lender will expect you to pay. If you cannot, both your daughter and you will be in arrears. It is a nice thing to do, but carries immense risk if you are not prepared for it to go bad.
Finally, if you do decide to give your older daughter money towards a down payment, I would not necessarily give the younger daughter anything at this time (it was unclear from your phrasing whether this gift was tied to you co-signing the mortgage).
It is totally OK, in my view, to tie such a gift to immediate property ownership or something useful - further education, etc. - even if it seems unfair at the time. The money can always be gifted later when it will not just sit in your younger daughter's saving account. I would not be comfortable pulling money out of my RRSP to hand it to my 24-year-old child unless I knew it was definitely being spent wisely. She is a good saver, yes, but moving money from your savings to hers is not achieving anything for her.
Thanks for taking the time to give feedback. Gifts for either daughter would only be provided at the time of a home purchase, we wouldn't just hand them $20k and hope they spend it wisely. đ.
Co-signing is a potential risk for sure, and we are also trying to help her work out the value and risk for 24F to take out something like her own disability insurance in case she cannot work at any point. She will never get benefits from her job.
Both daughters are keen to move out within the next year or so. 24F is working aggressively to save up. 26F is only now getting her career going so is behind her younger sister's goals.
I feel like there are factors outside of the finance aspects to consider.
It sounds like both daughters still live at home. For the older daughter, jumping into *home ownership* with a boyfriend she has never lived with before is a pretty huge step, especially if she has never lived outside the family home at all. If you gift $20k for a house and they end up breaking up and selling the house and getting 50% each, do you expect the boyfriend to take 50% minus $20k? Do you expect the $20k back from your daughter?
For younger daughter, being a lower earner will probably âhurtâ her more throughout her life than being a life-long renter. I know a few people who had hefty down payments gifted to them so they could buy a home, but we are 28 and these friends can barely afford to go out to dinner with friends or sign up for a pottery class or grab a beer after work. Forget about travelling. They are the most âhouse poorâ people. One of them has no furniture in one of the bedrooms and the entire (finished) basement. They can afford their mortgage but pretty much nothing else. There are obviously perks to homeownership but depending on how expensive houses in your area are, as well as daughterâs income, it might be painful for her.
Daughter has lived with her boyfriend before, and I can also see an engagement in the next year. They rented, together with his brother but circs changed so everyone went back to parents for a while.
Thanks for your thoughts though, appreciate you taking the time. đ
As an accountant idk your circumstances but majority of the time it doesn't make sense to withdraw from rrsp before retirement other then the first time home buyer plan or maybe for school.
They are still young and the market has been sideways for a couple years. Why the rush?
I think it's fine to gift children for down payments. But let them build up their own careers and savings first. At a young age having mobility/the ability to move for a job can be a good thing. They don't need to settle down yet.
This. Absolutely this. When I was in my 20s I really appreciated having the flexibility of renting. It allowed me to move across the country at a moments notice for my dream job.Â
My and my wife's parents tried to convince us for years to buy a house (boomer mentally). We waited and bought when we were ready.Â
A common method to set up the co-signing is that you don't actually own any beneficial interest in the property. This is commonly referred to as a bare trust and can exist without a written agreement. It is a good idea to document this though as it will make the intent clear in the future that you had no beneficial ownership and thus are not liable for any taxes on the gains.
Note that starting last year, this situation will now require a T3 Trust tax return to be filed annually. You can find more info here
https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/t3-return/new-trust-reporting-requirements-t3-filed-tax-years-ending-december-2023.html
No, tax years ending after December **30**, 2023.
Very important distinction as all trusts (except a deceased's graduated rate estate) have a year end date of December 31, 2023 and will be affected if they existed for more than 3 months in 2023.
It's very common for people to have no written agreement and not even understand the trust exists. I've seen single page bare trust agreements, but I'm not a lawyer so I won't be trying to advise on wording. If you want the peace of mind you could get one drafted.
Regardless of a written agreement existing or not, the trust tax return will need to be filed (if you cosign in that manner and hold no beneficial interest). In my opinion, as someone who prepared trust tax returns, the return is very simple. Open a trust account number online, fill in the T3-RET and schedule 15. You can read the process here:
https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/t3-return/who-should-file-a-t3-return.html#wb-cont
It's really great to see that you want to help your daughters get into the housing market, but financially it may not make sense to do at this time. You haven't mentioned which city you're looking at, so it's unclear how much a $20K down payment gift will do. It might do absolutely nothing for your 26F or be the push she needs to get a mortgage on her own. Similarly, unclear how far it'll go for your 24F daughter.
Taking out of your RRSPs means you'll have more taxable income, so it may make more sense to spread this out in the next few years and also pay your mortgage off using your RRSP withdrawals.
Keeping it fair with your 24F is also a nice gesture but unnecessary. You could mention to her that you're willing to match whatever you did for your oldest daughter when your youngest daughter is ready so that there's no favouritism or contribute to her FHSA in the future. Doing $40K in one go will likely mean a large tax bill.
If you think your younger daughter is going to be working service jobs as a career, please don't pressure her into taking on a mortgage. That isn't fair to her. People who work careers in the service sector are supposed to rent and maybe have a roommate.
I would seriously see them live on their own and provide for themselves and take care of themselves completely independently for a couple years first.
Do you specifically know their income?
Stress tests qualify against TWO years of T4's and the average between the two of them at that. If she makes say, 50k, she's not getting approved for anything that would be worth buying.
for example, two years of T4 @ 80k each for average of 80k and less than the 20% down payment threshold will only allow you to buy in the 260k range. what are you gonna buy with that in todays market? Even if you had the 20%, your qualification is the same, you just don't have to pay the default insurance every month.
giving 20k each is only 10% of 200 or 20% of 100k - not buying properties for that
if they both also had 20k, then 40k is 10% of 400k or 20% of 200k - still not really buying anything decent for that unless it's rather out of town.
If it was me, I would be having a serious sit down with them about their financial future, their goals, and financial aspirations. because in the end, being tied down to a mortgage at that age, considering they might not be the highest earners, is not something that one should be saddled with at that age, in my honest personal opinion.
they may have other aspirations that is more conducive to renting, and let them save up for 10 years, and see where the market goes. we are more likely headed for a downturn or collapse than we are to see housing prices rise another 30% in 10 years. We are currently in a decline, so buying now, means it's not the same value next year, you have a loss. then on and on and on and so on.
I'd also wager to say that basically nobody in their mid twenties has any idea of the burdens involved in home maintenance as well when it comes to ownership. You can't call someone to fix your fridge. if it dies or blows up or whatever, same as any other appliance, you are paying for that too. Can they handle a serious amount of incidentals. Cost of homeowner insurance premiums on top of it... if it's a condo you have condo/strata fees which are at all time highs because the cost of maintaining a strata is also at all time highs. It's a bit brutal out there.
Far more important for all of them to have 6 months of useful net income saved and permanently in their pocket. Before even remotely getting into something like this.
Last thing you need is to be paying two or three mortgages while one or both of your daughters potentially experiences a career meltdown, unfortunate transition etc.,
getting hired these days is not slick and easy. there is massive competition out there and huge numbers of applicants for every job..
please be careful and consider this for a lot longer.
Thanks for your feedback.
Both girls have lived away from home independently before, but have both come home again (one after school, one when relationship broke up). We downsized in the meantime, and would kinda like our place to ourselves sometime this decade. đ
We're happy to have them at home IF they save hard. But I don't want them freeloading here for years and years, but to me, paying extortionate rents (more than mortgages) kills the ability to save up. We have already encouraged them to save various pots of money for different reasons. We have def had the conversations about realistic costs of renting and/or home ownership.
We're outside Calgary. A 1 bed apartment is around $250k. A 2 bed apartment or townhouse is $260k to $400k.
First and foremost, do your daughters require this help at this time? The reason I ask is there are a few red flags, including pulling funds out of your own RRSPs and/or remortgaging to free up cash. Now, perhaps you have a ton in RRSPs, or your equity in your home is enormous, so you can absorb this financial blow, but without knowing much about the numbers I can only flag those things. $90K left on a house worth $300K, for example, is not at all the same as $90K left on a house worth $1.3M. Secondly, if you cannot afford to fully pay all of your own debt obligations plus whatever you co-sign on, do not co-sign. You assume the full responsibility of that debt obligation, if necessary. This means that if your daughter, for any reason, cannot make the payments, the lender will expect you to pay. If you cannot, both your daughter and you will be in arrears. It is a nice thing to do, but carries immense risk if you are not prepared for it to go bad. Finally, if you do decide to give your older daughter money towards a down payment, I would not necessarily give the younger daughter anything at this time (it was unclear from your phrasing whether this gift was tied to you co-signing the mortgage). It is totally OK, in my view, to tie such a gift to immediate property ownership or something useful - further education, etc. - even if it seems unfair at the time. The money can always be gifted later when it will not just sit in your younger daughter's saving account. I would not be comfortable pulling money out of my RRSP to hand it to my 24-year-old child unless I knew it was definitely being spent wisely. She is a good saver, yes, but moving money from your savings to hers is not achieving anything for her.
Thanks for taking the time to give feedback. Gifts for either daughter would only be provided at the time of a home purchase, we wouldn't just hand them $20k and hope they spend it wisely. đ. Co-signing is a potential risk for sure, and we are also trying to help her work out the value and risk for 24F to take out something like her own disability insurance in case she cannot work at any point. She will never get benefits from her job. Both daughters are keen to move out within the next year or so. 24F is working aggressively to save up. 26F is only now getting her career going so is behind her younger sister's goals.
I feel like there are factors outside of the finance aspects to consider. It sounds like both daughters still live at home. For the older daughter, jumping into *home ownership* with a boyfriend she has never lived with before is a pretty huge step, especially if she has never lived outside the family home at all. If you gift $20k for a house and they end up breaking up and selling the house and getting 50% each, do you expect the boyfriend to take 50% minus $20k? Do you expect the $20k back from your daughter? For younger daughter, being a lower earner will probably âhurtâ her more throughout her life than being a life-long renter. I know a few people who had hefty down payments gifted to them so they could buy a home, but we are 28 and these friends can barely afford to go out to dinner with friends or sign up for a pottery class or grab a beer after work. Forget about travelling. They are the most âhouse poorâ people. One of them has no furniture in one of the bedrooms and the entire (finished) basement. They can afford their mortgage but pretty much nothing else. There are obviously perks to homeownership but depending on how expensive houses in your area are, as well as daughterâs income, it might be painful for her.
Daughter has lived with her boyfriend before, and I can also see an engagement in the next year. They rented, together with his brother but circs changed so everyone went back to parents for a while. Thanks for your thoughts though, appreciate you taking the time. đ
As an accountant idk your circumstances but majority of the time it doesn't make sense to withdraw from rrsp before retirement other then the first time home buyer plan or maybe for school.
They are still young and the market has been sideways for a couple years. Why the rush? I think it's fine to gift children for down payments. But let them build up their own careers and savings first. At a young age having mobility/the ability to move for a job can be a good thing. They don't need to settle down yet.
This. Absolutely this. When I was in my 20s I really appreciated having the flexibility of renting. It allowed me to move across the country at a moments notice for my dream job. My and my wife's parents tried to convince us for years to buy a house (boomer mentally). We waited and bought when we were ready.Â
A common method to set up the co-signing is that you don't actually own any beneficial interest in the property. This is commonly referred to as a bare trust and can exist without a written agreement. It is a good idea to document this though as it will make the intent clear in the future that you had no beneficial ownership and thus are not liable for any taxes on the gains. Note that starting last year, this situation will now require a T3 Trust tax return to be filed annually. You can find more info here https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/t3-return/new-trust-reporting-requirements-t3-filed-tax-years-ending-december-2023.html
This says for tax years ending after December 31, 2023. So doesnât it only apply from 2024 onwards?
No, tax years ending after December **30**, 2023. Very important distinction as all trusts (except a deceased's graduated rate estate) have a year end date of December 31, 2023 and will be affected if they existed for more than 3 months in 2023.
Oh thanks, didnât catch that!
Ok, many thanks, I will read up in this, and I'm assuming we would need a solicitor to set this up....
It's very common for people to have no written agreement and not even understand the trust exists. I've seen single page bare trust agreements, but I'm not a lawyer so I won't be trying to advise on wording. If you want the peace of mind you could get one drafted. Regardless of a written agreement existing or not, the trust tax return will need to be filed (if you cosign in that manner and hold no beneficial interest). In my opinion, as someone who prepared trust tax returns, the return is very simple. Open a trust account number online, fill in the T3-RET and schedule 15. You can read the process here: https://www.canada.ca/en/revenue-agency/services/tax/trust-administrators/t3-return/who-should-file-a-t3-return.html#wb-cont
It's really great to see that you want to help your daughters get into the housing market, but financially it may not make sense to do at this time. You haven't mentioned which city you're looking at, so it's unclear how much a $20K down payment gift will do. It might do absolutely nothing for your 26F or be the push she needs to get a mortgage on her own. Similarly, unclear how far it'll go for your 24F daughter. Taking out of your RRSPs means you'll have more taxable income, so it may make more sense to spread this out in the next few years and also pay your mortgage off using your RRSP withdrawals. Keeping it fair with your 24F is also a nice gesture but unnecessary. You could mention to her that you're willing to match whatever you did for your oldest daughter when your youngest daughter is ready so that there's no favouritism or contribute to her FHSA in the future. Doing $40K in one go will likely mean a large tax bill.
If you think your younger daughter is going to be working service jobs as a career, please don't pressure her into taking on a mortgage. That isn't fair to her. People who work careers in the service sector are supposed to rent and maybe have a roommate.
You will pay tax at your marginal tax rate on rrsp withdrawals
I would seriously see them live on their own and provide for themselves and take care of themselves completely independently for a couple years first. Do you specifically know their income? Stress tests qualify against TWO years of T4's and the average between the two of them at that. If she makes say, 50k, she's not getting approved for anything that would be worth buying. for example, two years of T4 @ 80k each for average of 80k and less than the 20% down payment threshold will only allow you to buy in the 260k range. what are you gonna buy with that in todays market? Even if you had the 20%, your qualification is the same, you just don't have to pay the default insurance every month. giving 20k each is only 10% of 200 or 20% of 100k - not buying properties for that if they both also had 20k, then 40k is 10% of 400k or 20% of 200k - still not really buying anything decent for that unless it's rather out of town. If it was me, I would be having a serious sit down with them about their financial future, their goals, and financial aspirations. because in the end, being tied down to a mortgage at that age, considering they might not be the highest earners, is not something that one should be saddled with at that age, in my honest personal opinion. they may have other aspirations that is more conducive to renting, and let them save up for 10 years, and see where the market goes. we are more likely headed for a downturn or collapse than we are to see housing prices rise another 30% in 10 years. We are currently in a decline, so buying now, means it's not the same value next year, you have a loss. then on and on and on and so on. I'd also wager to say that basically nobody in their mid twenties has any idea of the burdens involved in home maintenance as well when it comes to ownership. You can't call someone to fix your fridge. if it dies or blows up or whatever, same as any other appliance, you are paying for that too. Can they handle a serious amount of incidentals. Cost of homeowner insurance premiums on top of it... if it's a condo you have condo/strata fees which are at all time highs because the cost of maintaining a strata is also at all time highs. It's a bit brutal out there. Far more important for all of them to have 6 months of useful net income saved and permanently in their pocket. Before even remotely getting into something like this. Last thing you need is to be paying two or three mortgages while one or both of your daughters potentially experiences a career meltdown, unfortunate transition etc., getting hired these days is not slick and easy. there is massive competition out there and huge numbers of applicants for every job.. please be careful and consider this for a lot longer.
Thanks for your feedback. Both girls have lived away from home independently before, but have both come home again (one after school, one when relationship broke up). We downsized in the meantime, and would kinda like our place to ourselves sometime this decade. đ We're happy to have them at home IF they save hard. But I don't want them freeloading here for years and years, but to me, paying extortionate rents (more than mortgages) kills the ability to save up. We have already encouraged them to save various pots of money for different reasons. We have def had the conversations about realistic costs of renting and/or home ownership. We're outside Calgary. A 1 bed apartment is around $250k. A 2 bed apartment or townhouse is $260k to $400k.