From a tax perspective, 2023 is the year in which the tax-free savings account for the purchase of a first property is introduced. The new account is aimed at home ownership, but its scope is broader. A brief overview of the CELIAPP, a hybrid plan retaining the best of the TFSA and the RRSP, it is said, which should be available as of April.
A Canadian resident between the ages of 18 and 71 can contribute up to $8,000 per year, for a lifetime limit of $40,000. Like the RRSP, the contribution is tax deductible, and like the TFSA, withdrawals 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 a subsequent year up to $8,000. “Deferred contribution amounts would only begin to accrue after an individual opens a TFSA for the first time,” says the Department of Finance Canada.
In fact, when it says first ownership, Ottawa specifies that the taxpayer must not be the owner of a dwelling in which he lived at any time during the part of the calendar year preceding the withdrawal of his CELIAPP or at any time during the previous four calendar years.
The individual is only entitled to one lifetime TFSA. Withdrawal is limited to one eligible lifetime home and must be made no later than 15e year of account opening. The holding period ends when the earliest of the following occurs:
– at the end of the year of the 15e anniversary of the opening date of the first CELIAPP;
– at the end of the year in which the individual reaches the age of 71;
– at the end of the year following the first eligible withdrawal from a TFSA by the individual.
Transfer to RRSP, and vice versa
Another beauty of the account is that any savings that are not used to buy a qualifying home can be transferred to an RRSP or a registered retirement income fund (RRIF) without tax consequences at the time of the transfer, regardless of RRSP contribution room available. Otherwise, it is withdrawn on a taxable basis. Such a transfer does not reduce the individual’s RRSP contribution limit and is not limited by it. Obviously, it would not restore the lifetime contribution limit to a TFSA.
This avenue is particularly attractive in the event that an individual who has opened a TFSA does not buy a first home. “Note that he does not need to wait for the 15-year limit before transferring to the RRSP; it can be done at any time,” reads a reference document co-written by Luc Godbout, senior researcher in public finance at the Research Chair in Taxation and Public Finance at the University of Sherbrooke, and Natalie Hotte, Senior Advisor, Taxation, Retirement and Estate at National Bank Trust.
The amount thus transferred continues to accumulate without the return being taxed until the time of withdrawal from the RRSP. And for individuals who no longer have RRSP space, the TFSAPP thus used provides the equivalent of an excess contribution, sheltered from tax until it is withdrawn.
Little wink. Lawyer, tax expert and financial planner Jean Turcotte has proposed a tax optimization strategy consisting, for an eligible individual, in opening a TFSA at age 65 and contributing $8,000 per year for five years, to transfer everything to an RRSP. before age 71, “This strategy could reduce his net income in order to take advantage of or optimize certain programs (PSV / GIS) and tax credits, while increasing the value of his RRSP”, we read in the specialized media Finance and investment.
Conversely, the transfer of funds is permitted from an RRSP to a TFSA, on a tax-free basis, subject to the annual and lifetime limits on contributions to a TFSA. Obviously, this transfer is not deductible as an account contribution and does not restore the RRSP contribution limit. “The transfer from an RRSP to a TFSAPP is possible, provided that it does not come from spousal contributions that have been paid into the RRSP during the current year or during the two previous years”, specifies the document. reference of the Research Chair.
CELIAPP-RAP
This transfer game is echoed in the complementarity CELIAPP-Régime d’accession à la propriete (RAP). Remember that the HBP allows you to withdraw from your RRSP a maximum of $35,000 for the purchase of a first property, but the withdrawal must be repaid to the RRSP over a period of 15 years. For the TFSAPP, the maximum is $40,000, to which is added the return accumulated over the years, and its withdrawal is tax-free. On the other hand, the HBP can be used more than once if the terms and conditions are respected.
The combination of the two is added to the range of possibilities. Luc Godbout gives the example of an individual who contributed the maximum of $40,000 who, after a few years of performance, reached the value of $90,000. If necessary, he could have a margin of maneuver of $125,000 for the acquisition of an eligible home, ie $90,000 non-taxable and non-refundable from his TFSAPP and $35,000 under the HBP.
Other little beauties of the CELIAPP removed from the registration document:
– Like an RRSP contribution, an individual can defer his deduction request indefinitely, in particular during a year when his tax rate is at its maximum;
– Unlike the RAP, the CELIAPP does not contain rules for holding a minimum of 90 days within the plan so that the contribution is deductible;
– If the TFSA is associated with a form of investment comparable to bank accounts, it becomes logical to believe that the notion of family patrimony would not apply.