A new acronym will enter our vocabulary and bank advertising: CELIAPP. These seven letters designate a savings account to help young people “easier to get the keys to their first home”. Particularly generous, it combines the advantages of the TFSA and the RRSP.
Posted at 4:43 p.m.
All the rules surrounding the tax-free savings account for the purchase of a first property (TFSAPP) are not yet known. But it would not be surprising if this flagship measure of the second Freeland budget signed the death warrant of the RAP, the famous Home Buyers’ Plan.
Why ? Because the CELIAPP is less restrictive. More paying too.
Let’s see how it works.
As of 2023, it is possible to open this type of account and deposit $8,000 per year in order to accumulate the down payment necessary for the purchase of your first property. The beauty of the matter is that the contributions are fully tax deductible, like those paid into an RRSP.
You earn $70,000 a year, you put the maximum in your TFSA and presto, your taxable income has just fallen to $62,000. This really increases the savings capacity since the tax refund can be paid into the account immediately.
That’s not all. A second gift is offered at the time of withdrawal. No tax will be required on the return obtained, as if it were a TFSA. “From a taxpayer’s point of view, it’s a dream,” said Luc Godbout, holder of the research chair in taxation and public finance at the University of Sherbrooke.
All good things have limits. For example, unused contributions are not transferable to the following year and a lifetime cap of $40,000 is imposed.
The great advantage of the CELIAPP, compared to the HBP, is that there is nothing to repay over the years.
This less burden will allow first-time buyers to breathe a little in the context where house prices have exploded for two years. A trend that is not slowing down. In March, the median price of single-family homes in Quebec reached $430,000, a jump of 21% in 12 months, according to the Association professionnelle des courtiers immobiliers du Québec (APCIQ).
Of course, even the best life plans change. Ottawa has foreseen the coup by allowing the transfer of sums accumulated in a CELIAPP to an RRSP and even a RRIF. The flexibility is considerable (see box below).
The CELIAPP also allows new buyers to avoid a curious mix of genres. Money set aside for retirement should be used… in retirement.
That said, this new account does not increase household wealth. Those who struggle to put money in an RRSP or a TFSA will not have the means to complete a TFSAAPP. In many cases, those who dream of being owners will have to prioritize one or two accounts out of the three, or even the four, if we add the RESP, for studies.
Don’t be surprised if this question often comes up: RRSP, RESP, TFSA or TFSAAPP first?
Only the most affluent will be able to take advantage of all these investment vehicles and financial advisors will certainly not delay in developing strategies to make the most of them for their clients. “We are adding complexity to the planning,” says Stéphane Leblanc, tax specialist and partner at Ernst & Young. An observation shared by Luc Godbout.
In Ottawa, we are perfectly aware that this new measure will benefit the wealthiest more.
“The combination of tax-deductible contributions and tax-free withdrawals means that the measure provides the greatest benefits to high-income first-time home buyers, as they face higher marginal tax rates and have a greater ability to save for a down payment,” reads a document provided to the media.
At the same time, would it be healthy to encourage people who cannot afford to maintain a house to become owners?
What is peculiar is that in 1974, when Justin Trudeau’s father ruled Canada, a similar savings plan was created. We wanted, like today, to help young people acquire a first property and slow down the meteoric rise in real estate prices. The Registered Home Ownership Savings Plan (REEL) was improved over the years, but abolished about ten years later.
Its detractors at the time did not see how such an incentive to save could curb real estate inflation. Even today, the CELIAPP risks fueling the market by bringing in a greater number of buyers.
What there is to know
Eligibility criteria :
- Be a resident of Canada and be at least 18 years old
- Not have lived in a property owned by us in the year the account was opened or in the previous four calendar years
Start: 2023
Maximum contribution of $8,000 per year, ceiling of $40,000 for life.
Unused annual contribution room cannot be carried over to a later year.
Contributions are tax-deductible and first-time home purchase withdrawals, including investment income, are tax-free.
Individuals will not be eligible to make both a TFSAPP withdrawal and a HBP withdrawal for the purchase of the same property.
A transfer from the TFSA to the RRSP will not reduce future contribution room and will not be limited by rights already acquired.
Individuals will be limited to making tax-free withdrawals from a single property during their lifetime.