# Mortgage: withdraw from corp for bigger down payment?



## JayRoc (Apr 4, 2009)

I have a large share of cash available in my corporation that I can withdraw for a down-payment on a house, but this will be taxed at at least 33% when I take it out. I am unsure whether taking this amount out is worth it to make a large down payment on a house, in order to get the mortgage paid off quickly and to avoid years of interest payments to the bank. Interest rates are bound to go up soon.
The other option is taking $25k out of my RRSP; or doing both to make a larger down payment. 

The question here is: what is the best option - withdrawing from the corp and suffer a 33% tax loss on the withdrawal (but having less owing on the house); withdrawing from my RRSP and missing potential growth; or just doing a standard 5% - 15% down payment and making regular payments but accruing all the interest that goes with a larger mortgage. A bit of a dilemma. Currently I don't own any property.

Your advice is appreciated.


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## MoneyGal (Apr 24, 2009)

This isn't really a dilemma, it's a math problem. 

All your inputs are known: the rational path (which may not be the ideal path) is the one that has the best after-tax, after-interest present value. 

I suspect, without running scenarios, that taking money out of the corp would win. Although you'd pay 33% in tax, that number probably pales in comparison to the interest you'd pay on $n amount of extra mortgage, especially if (when) rates rise.


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## JayRoc (Apr 4, 2009)

Thanks MoneyGal - however, the other part of this is that I could leave the money in the corp and invest it instead of using it for the downpayment. I think that you are correct as far as things go, but investing it seems a viable option as well.


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## MoneyGal (Apr 24, 2009)

Yes - you have many possible paths. 

In your shoes I'd set up a model where I made assumptions about future investment value, future mortgage rates, future gains etc. and compare the present values of every option. You'd also need to see if the best option changes depending on the timeframe. You'd also need to add a factor for uncertainty...


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## Oldroe (Sep 18, 2009)

Think I would take the cash,max my RSSP,and buy the house with the tax return.


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## Dana (Nov 17, 2009)

I have a couple of questions:

Are there tax advantages to taking the money from the corp as a shareholder loan?

Would it be possible (read: would CRA allow it) for you to take the money from the corp, purchase the house and then borrow against the equity in the house to re-invest in the corp, thus resulting in a tax deduction for the interest paid?


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## JayRoc (Apr 4, 2009)

That is an excellent suggestion - I'll have to check with my accountant about shareholder loans. Thanks!


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## MoneyGal (Apr 24, 2009)

I'm no lawyer but I believe Lipson put an end to these kinds of strategies. Hopefully Racer will pop in to provide an opinion.


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## Oldroe (Sep 18, 2009)

This really isn't a dilemma or a math problem. If you won't pay the tax to buy a house. The money is a waste of time!


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## JayRoc (Apr 4, 2009)

?????


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## MoneyGal (Apr 24, 2009)

My thoughts exactly. ????


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## Oldroe (Sep 18, 2009)

It's like this if you have 200k and you are afraid to pay 32% tax to buy a house in 10 years you will have 300k and afraid to pay 32% tax, so you die with all this money. Whats the point?


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## MoneyGal (Apr 24, 2009)

Well, given that the "dying" part is pretty much inevitable, I think the point (of this thread anyways) is to figure out whether you are dying in a house you own in 2035 or 2045, depending on how you structure your financial affairs in 2010.


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## Oldroe (Sep 18, 2009)

It's time to use your deferred income. Put as much down as possible without busting yourself. This will give you plenty room to maneuver.

Then keep buying your deferred company shares for the next rainy day.


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