Émile Asselin, 19, is a technical student in aerospace engineering and works part-time. Since he was a teenager, he has been saving to buy a property.
“It’s an investment and I don’t like paying rent,” he says.
In December, he opened a CELIAPP, which gave him $8,000 in contribution room for 2023 and he had another tranche of $8,000 in 2024.
The advantages of CELIAPP
In the eyes of Simon Préfontaine, financial planner at Lafond Financial Services, CELIAPP “is one of the biggest tax gifts that the federal government has given.”
PHOTO CHARLES WILLIAM PELLETIER, SPECIAL COLLABORATION
Simon Préfontaine, financial planner at Lafond Services Financiers
First, because as with the registered retirement savings plan (RRSP) which allows you to benefit from the RAP, the contributions are deductible from your taxable income. “But, unlike the RAP,” he explains, “no reimbursement is required after taking a sum out of your CELIAPP. In addition, the amounts invested grow tax-free, as in the tax-free savings account (TFSA). CELIAPP therefore has the best of both. »
In addition, there is no maximum withdrawal in the CELIAPP, underlines Isabelle Martineau, chartered professional accountant (CPA), senior tax advisor at Desjardins Group. “If a person contributes $8,000 per year to their CELIAPP for five years, they reach the maximum contribution of $40,000,” she explains. If the return is there, after 10 years, the person can have, say $50,000. By meeting the conditions, she can make a tax-free withdrawal of $50,000 and use this amount as a down payment on her first property. This is one of the big advantages of CELIAPP. »
40,000
This is the maximum number of dollars that you can contribute to your CELIAPP while respecting the annual maximum. But there is no maximum withdrawal.
The RAP has a maximum withdrawal of $35,000. “A person can decide to use both tools to obtain a more substantial down payment,” adds Isabelle Martineau.
Choose the right time
However, you must make sure to open your CELIAPP at the right time. Because this tax gift from the federal government is only good for 15 years.
“The problem is that young people often don’t know what they want to do,” says Simon Préfontaine. They study, want to travel, work abroad for a while, etc. As you can only use the CELIAPP once in your life, you must avoid opening it early and then losing it before you can carry out your project. »
For his part, Émile is certain of becoming an owner in about six years. “I want to finish college, then go to university, then start working in my field and buying,” he says.
A person who ultimately gives up on their project would not be at a disadvantage.
PHOTO PROVIDED BY DESJARDINS
Isabelle Martineau, senior tax advisor at Mouvement Desjardins
After 15 years, if you have not withdrawn the amount from your CELIAPP to buy a property, you can transfer it to your RRSP without tax impact and without it affecting your contribution rights. So, even if you don’t buy a house, you have nothing to lose by opening a CELIAPP since you benefit from tax deductions and your savings grow tax-free.
Isabelle Martineau, CPA, senior tax advisor at Desjardins Group
You should know, however, that the conditions for withdrawing from your CELIAPP are quite strict. “For example, it is not possible to make a withdrawal without tax impact to finance a return to studies as is the case with the RRSP,” maintains Simon Préfontaine. We have to be sure that we won’t need this money for anything else. »
Carry forward your contribution rights and deductions
As soon as a person opens their CELIAPP, they obtain $8,000 in contribution rights per year, until reaching the maximum of $40,000, therefore for five years. If you cannot contribute as much, it is possible to carry over your unused contribution room to the following year.
“On the other hand, the person can never have more than $16,000 in contribution room for a year,” specifies Isabelle Martineau.
The person can contribute to their CELIAPP over a maximum period of 15 years. In addition, as with the RRSP, a young person can defer their tax deduction. For example, he will be able to use it when his tax rate is higher.
If the CELIAPP is essential for buying a first property, the RAP continues to have certain advantages.
“If you have sufficient RRSP contribution room, you can deposit $35,000 in one year, benefit from tax deductions and withdraw it all to buy your property,” says Simon Préfontaine. With the CELIAPP, you only get $8,000 in contribution rights per year. And we know that young people often decide to buy within a year or two. »
Before opening a CELIAPP, the two experts recommend seeking support from a financial advisor to make the best decisions for your situation.