Use a Tax Strategy to Offset Potential Rising Mortgage Costs

By Evelyn Jacks & Beth Graddon

Did you know that housing investment has outgrown business investment for the first time since 1961 and housing investment currently sits at 71% of GDP and is growing at two times the rate of the economy? Canadians are devoting more capital to housing and with that shift in investing activity, there may be room for year end financial planning to mitigate upcoming risks on the horizon.  One of them is rising prices – interest and inflation, for example.    

With estimates that the average Canadian family could be paying an average of $86 more monthly for their mortgage payment by the end of 2023 due to potentially rising interest rates, now is the time for tax and financial advisors to discuss tax strategies to offset higher mortgage costs with clients.

Rising mortgage interest rates above the current 0.25% could have a significant impact on Canadian families, particularly when inflation, costs of food, gas and more are all on the rise too.

According to a report by Oxford Economics, the $86 average monthly increase to Canadian mortgage payments is forecasted by the fourth quarter of 2023, if the Bank of Canada raises its policy rate from 0.25%. If it increases back to the “neutral” level of 2% by 2026, Canadians may see a $236 increase in their monthly mortgage cost.

The risks of even a marginal increase could be great to many families already carrying increased debt loads, or with income affected due to the Pandemic. A tax strategy to offset potential mortgage costs is something that tax and financial advisors need to be discussing proactively with their clients now before a potential rise in mortgage costs take their toll. 

An RRSP contribution can help offset these mortgage increases. For each $1,000 contributed, you could get between 25% and 53% back, depending on your marginal tax bracket, not to mention increases in income-tested benefits like the tax-free Canada Child Benefit.  

Bottom Line:  A wise investment strategy, beyond the funding of mortgages, is an important hedge against rising prices.  Proactive tax and financial advisors can help clients shore up their after-tax cash flow in 2022 by opening new conversations before the end of this year.  Don’t forget to file adjustments for errors and omissions on the 2011 tax return before December 31; as this tax year will be statute barred after this. 

Additional educational resources: To learn the latest tax changes and tax-efficient strategies to help clients in the 2022 filing season and beyond, attend the January 19 Advanced Personal Tax Update.

This Virtual CE Summit trains new and returning staff in a new and improved hybrid live and online course that will help you to shake out the cobwebs and drill down on the detailed tax theory or “dark horses” as well as all news from CRA and Finance Canada for filing 2021 tax returns.  Canada’s most comprehensive and popular advanced personal tax update features what our delegates call the “Tax Bible” – the comprehensive desk top reference coveted by tax and accounting professionals from coast to coast. Enrol by Dec 15 to receive lunch and a hard copy journal included in tuition.