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How does the CELIAPP work?
- CELIAPP vs RAP
- CELIAPP withdrawals
- A new advantageous tool
Future buyers will soon be able to count on a new tool to help them build a down payment. If all the rules surrounding the flagship measure of the 2022 federal budget are not known at this time, here is what we know about the tax-free savings account for the purchase of a first property (TFSAPP) which will be available from January 1, 2023.
What is the CELIAPP?
Set up to help buyers access a first home in a difficult real estate context, the TFSA is an attractive account from a tax standpoint since it combines certain advantages of the registered retirement savings plan (RRSP), the Home Ownership (HBP) and Tax-Free Savings Account (TFSA).
How does the CELIAPP work?
tax deductible
Just as RRSP contributions already are, TFSA contributions will be deductible from taxable income. As for investment income and capital gains, they will grow tax-free, like the TFSA, provided they are used to purchase a first property. Remember that in the case of an RRSP, the money earned is taxed when it is withdrawn.
Maximum contributions
Starting January 1, 2023, all eligible individuals will be able to open a TFSA to make contributions of up to $8,000 per year, up to $40,000 for life.
Unlike RRSPs and TFSAs, unused annual rights cannot be accumulated or carried over to the following year. For example, if you contribute only $4,000 in 2023, your contribution limit for the following year will remain unchanged at $8,000.
However, a future buyer who has maximized his TFSAPP each year will be able to use his contributions totaling $40,000, as well as the income earned, after five years to constitute a down payment in order to acquire a property.
A couple could also contribute up to $80,000, an amount capped at $70,000, or $35,000 per person, in the case of the HBP.
Eligibility criteria
Canadians aged 18 and over will be able to open a TFSA as long as they have not lived in a property owned by them in the year the account was opened or in the previous four calendar years.
CELIAPP vs RAP
Another undeniable advantage of the CELIAPP could very well harm the popularity of the HBP. In fact, under the RAP framework, the sums withdrawn from the RRSP must be repaid during the 15 years following their withdrawal to prevent these amounts from being taxed. However, the money withdrawn from the TFSA for the purchase of a first property will not have to be repaid, which is probably its greatest asset. However, the account must be closed within 12 months of withdrawing the money since it can only be used once in a lifetime.
Furthermore, it is important to specify that it will not be possible to use the sums contributed to both the CELIAPP and the RAP for the purchase of the same property.
CELIAPP withdrawals
In order not to be taxed, the sums held in the CELIAPP must imperatively be used for the purchase of a first property. In the event that the money is not used to constitute a down payment within 15 years following the opening of the account, it can still be transferred to an RRSP or a registered retirement income fund (RRIF) , in which case it will be taxed on a deferred basis, according to the marginal tax rate when it is withdrawn. Another tax benefit: transferred savings will not reduce available RRSP contribution room.
Other sums withdrawn from the TFSAPP for purposes other than the purchase of a first property will simply be taxed.
A new tool to integrate into your savings strategy
If several questions remain, in particular with regard to the owner spouse, the rules in the event of separation, the contributions made during the first 60 days of the year or the eligible investments; the CELIAPP seems to be a tool not to be overlooked in a savings strategy, whether you want to buy a first property or not.
Consult your mortgage broker to find out more!
To remember
- The CELIAPP is intended for the purchase of a first property
- It combines certain advantages of RRSP, HBP and TFSA
- Unused amounts can be transferred to the RRSP
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