This week, Laurence writes to us to ask us a question that many are also asking these days. “I am 28 years old and I am currently a tenant. Since I work in the public service, I contribute to a pension plan. Along with my savings efforts, I also contribute to my TFSA ($600/month) for various projects. In recent years, I have also contributed to my RRSP (my balance is $15,000) hoping to use the HBP one day. I had put my project on hold with the soaring cost of houses, but since it does not seem to be correcting itself, I have decided to resume my project of becoming an owner, ideally within two years. I wonder if I should continue to invest in the RRSP to use the HBP, or if it is better for me to use the CELIAPP? I have $10,000 to invest and I know the RRSP deadline is February 29. »
So, CELIAPP or RRSP?
New and still unknown
Since April 2023, the tax-free savings account for the purchase of a first property (CELIAPP) allows you to save for the purchase of an eligible first home. Like contributions to the Registered Retirement Savings Plan (RRSP) program, those made under the CELIAPP are deductible from taxable income and allow you to generate income in a tax-exempt account.
Furthermore, certain notable differences are observed between the two regimes. The CELIAPP contribution rights are the same for all individuals ($8,000 per year over five years), while those for the RRSP are calculated based on earned income. In addition, an important distinction, withdrawals made under the CELIAPP will not have to be repaid after the purchase, compared to the amount withdrawn with the Home Ownership Plan (RAP). You must then repay through new RRSP contributions, over a maximum period of 15 years, the amount that you “borrowed from yourself”, otherwise the planned repayment amount will be added to your taxable income.
Contrary to what its name might suggest, there will be no problem with CELIAPP if you never buy your first property. Certainly, its first objective is to withdraw without tax impact the sums accumulated to finance the purchase of a first residence. In the worst case, however, the balance of the CELIAPP account can be transferred without any tax impact to the RRSP if it has not been used at the latest fifteen years after opening.
Protect your eligibility
Considering this fifteen-year opening period for the CELIAPP, some will wonder if it is risky to open this account too young, i.e. from 18 years old. Obviously, consideration will be required depending on your plans and your financial situation. Is it realistic to buy a home at 33? The answer depends on your personal priorities and the cost of homes in your target market.
On the other hand, by paying too much attention to the age at which you plan to become a homeowner, you could miss an unsuspected risk. That of no longer meeting the eligibility criteria for… romantic reasons! In fact, to be considered a specified individual in the eyes of the program, you must not have lived in an eligible residence that you owned in the calendar year of withdrawal and the four preceding years. This is also the case for your common-law partner or spouse. It is therefore possible that a new marital relationship with someone who is already an owner or who has just separated and disposed of their real estate titles prevents you from opening a CELIAPP account.
So, in my opinion, it is better to take the risk of opening it too early than to miss your chance.
Why choose, if it is not required?
It is possible to combine both the RAP and the CELIAPP when purchasing the property. Considering the fact that the average cost of homes and interest rates remain high, a large down payment may be required to purchase. For our reader Laurence, it is more difficult to use both plans since a significant part of her pay is already directed to the retirement plan. But for many young taxpayers who do not benefit from this advantage, it is advisable to favor the CELIAPP while also aiming to accumulate the $35,000 in RRSPs possible to withdraw under the RAP. Not only does this allow great latitude in financing the real estate project, but it also gives you a head start on retirement.
In the case of our reader, if she currently has $10,000, her first contribution to CELIAPP will be limited to $8,000 for 2024. It is possible to recover rights, but only for the years during which the account was open. A contribution of the remaining $2,000 could, of course, be made in the short term to her RRSP, by February 29, if she has the unused rights of course.
However, before proceeding and setting her plan, our reader will need to review her annual budget and validate the monthly amount available for her home ownership project. Taking into account his $8,000 contribution to CELIAPP next January, how much will he have left for the RRSP? If her liquidity is too tight, she will have to keep the $2,000 in her TFSA until the CELIAPP contribution in 2025 since her purchase horizon is two years. However, if she believes that an opportunity may present itself in 2024, she should then immediately contribute this amount to the RRSP since a period of 90 days is required to use the amounts accumulated in the RRSP under the HBP.