CELIAPP revisited… and its results

The Tax-Free Savings Account for the purchase of a first home has just passed its first anniversary. A brief review and reminder of the main parameters of the CELIAPP.

The TFSA officially came into effect in April 2023, but due to technological constraints, many financial institutions were only able to offer it starting in the summer. It is still possible to take stock after one year of existence. According to data collected by the Canada Revenue Agency (CRA) from returns processed as of May 25, the fair market value of all accounts opened was nearly $2.8 billion as of December 31, 2023. If we add transfers from an RRSP to the TFSA, the total value of contributions reached $3.05 billion.

Also as of December 31, 2023, 739,310 Canadians had opened a TFSA. Since it is permitted to hold more than one account, there were 812,000 accounts, a number that includes those that were subsequently closed. Of this total, 551,100 holders made a contribution last year, for an average value of $5,484, and 5,060 TFSA holders made a transfer from their RRSP, for an average transfer of $6,057.

Of these, 317,240 holders deposited the maximum annual amount allowed of $8,000, which includes RRSP contributions and transfers. In terms of disbursement, the CRA notes that as of December 31, 2023, 34,230 holders made an eligible withdrawal, for an average withdrawal of $7,800.

Since the CELIAPP targets the first-time buyer, we can see that 50% of so-called active account holders had a taxable income of $53,359 or less. The CRA defines an active account as an account that has not been identified as closed or indicated as such, but whose financial institution has reported a balance greater than zero.

In Quebec, for the 2023 tax year, just over 133,000 individuals claimed a TFSA deduction in their income tax return, for a total amount of $798 million, says Revenu Québec, which compiled these results as of June 30. “This is equivalent to an average of $6,000 per individual, while the allowable limit is $8,000 per year for a maximum of $40,000 over life for the purchase of an eligible first home,” the Agency points out.

A quick reminder of the main points of CELIAPP

A Canadian resident aged 18 to 71 can deposit up to $8,000 per year into this fund, for a lifetime limit of $40,000. Like the RRSP, the contribution is tax deductible, and like the TFSA, withdrawals made from it (in this case, for the purchase of a first property), including investment income, are tax-free. The unused portion of the annual contribution limit can be carried forward to the following year, up to $8,000.

With respect to the term “first property”, Ottawa specifies that the taxpayer must not be the owner or co-owner of a principal residence in which he or she lived at any time during the calendar year or during the four preceding years.

Any savings that are not used to purchase an eligible home can be transferred to an RRSP or RRIF without tax consequences at the time of the transfer, regardless of the RRSP contribution room available. Such a transfer does not reduce the individual’s RRSP contribution limit and is not limited by it. Of course, it would not restore the lifetime TFSA contribution limit.

Conversely, the transfer of funds is permitted from an RRSP to a TFSA, and this is tax-free, subject to the annual and lifetime contribution limits for a TFSA. Of course, this transfer is not deductible as a contribution to the account and does not restore the contribution limit for an RRSP. This transfer will have no tax impact. Even if this transfer of money from the RRSP to the TFSA will not allow for new deductions, the amounts used for the purchase of an eligible first property will not have to be repaid (unlike the Home Buyers’ Plan with the RRSP).

Other little beauties of CELIAPP noted in the reference document of the Ministry of Finance:

— As with the RRSP contribution, an individual can defer their deduction request to later years, particularly during a year when their tax rate is at its maximum.

— Unlike the Home Buyers’ Plan (HBP), the CELIAPP does not contain a rule requiring a minimum of 90 days of holding within the plan for the contribution to be deductible.

And there is a CELIAPP-RAP complementarity that should not be overlooked.

To see in video

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