CELIAPP, a new payment tool for first time buyers

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How does CELIAPP work?

  • CELIAPP vs RAP
  • CELIAPP withdrawals
  • A new useful tool

Future consumers will soon rely on a new tool to help them generate a down payment. If we don’t know by now all the rules surrounding the flagship measure of the 2022 federal budget, here’s what we know about the tax-free savings account for the purchase of first property (TFSAPP) that will be available from January 1, 2023.

What is CELIAPP?

Set up to help buyers access a first home in a challenging real estate context, CELIAPP is an attractive account from a tax perspective because it combines some particular benefits of registered retirement savings plan (RRSP), Home Ownership (HBP) and Tax-Free Savings Account (TFSA).

How does CELIAPP work?

tax deductible
As with RRSP contributions, TFSA contributions are deductible from taxable income. As for investment income and capital gains, they will grow tax-free, like the TFSA, as long as they are used to buy the first property. Note that in the case of an RRSP, the money earned is taxed when it is withdrawn.

Maximum contribution
Beginning 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 into the next year. For example, if you only contribute $ 4,000 in 2023, your contribution limit for next year will remain unchanged at $ 8,000.
However, a future buyer who maximizes his TFSAPP each year will be able to use his contributions totaling $ 40,000, as well as earned, after five years to be a down payment to acquire a property.
A couple can also contribute up to $ 80,000, an amount limited to $ 70,000, or $ 35,000 per person, in the case of HBP.

Eligibility criteria
Canadians aged 18 and over can open a TFSA as long as they have not lived on a property they owned in the year the account was opened or in the last four calendar years.

CELIAPP vs RAP

Another undeniable advantage of CELIAPP is that it can damage the popularity of HBP. In fact, under the RAP framework, amounts withdrawn from the RRSP must be repaid within 15 years following their withdrawal to prevent these amounts from being taxed. However, the money withdrawn from the TFSA for the purchase of a first property does not have to be repaid, which is probably its largest asset. However, the account must be closed within 12 months of withdrawing the money as it can only be used once in a lifetime.
Furthermore, it is important to specify that it is not possible to use the amounts contributed to CELIAPP and to RAP for the purchase of the same property.

CELIAPP withdrawals

In order not to be taxed, the amounts held in CELIAPP are required to be used for the purchase of an initial property. In case the money is not used to be a down payment within 15 years after account opening, it can still be transferred to an RRSP or a registered retirement income fund (RRIF), where it will be taxed on a deferred basis, according to the marginal tax rate when it is revoked. Another tax benefit: the transferred savings will not reduce the available RRSP contribution room.
Other amounts withdrawn from TFSAPP for purposes other than the purchase of an initial property will be taxed only.

A new tool to integrate into your savings strategy
If certain questions remain, specifically about the owner’s spouse, the rules in the event of separation, the contributions made in the first 60 days of the year or the eligible investments; CELIAPP seems to be a tool that should not be missed in a savings strategy, whether you want to buy a first property or not.
Consult your mortgage broker to find out more!

To remember

  • CELIAPP is intended for the purchase of a first property
  • It combines several advantages of RRSP, HBP and TFSA
  • Unused values ​​can be transferred to the RRSP

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