It’s today, 1er April, that the famous tax-free savings account for the purchase of a first home (TFSAP) becomes a reality. Its objective: to improve the savings capacity of those who dream of having a mortgage at a time when the down payment is particularly difficult to accumulate. The CELIAPP does not work miracles. But for people who have a good savings capacity – or a generous family – it will give a serious boost.
Can anyone open a TFSA?
No. To qualify, you have to qualify. You must be between 18 and 71 years old. One cannot have been an owner during the current year nor during the four previous calendar years. And to pass the test, you will also have to demonstrate that your “tax spouse” (a person who has lived with us for more than a year) has not been a property owner in the last five years.
Let’s say I meet the great love two years after opening my CELIAPP and he invites me to live in his house. Should I close my account?
You can still contribute. You can even avoid taxes by withdrawing the money from your account to buy him half of his house. And if you become joint owners of another house, you can also withdraw the money from your TFSA without being taxed. Your spouse does not “contaminate” you as is the case with the Home Buyers’ Plan (HBP).
I am a tenant in town and I would like to buy a chalet near the ski slopes. Am I eligible?
No. The CELIAPP must be used for the purchase of a principal residence only. Rental properties and secondary residences are not eligible.
Is there a way to benefit from the advantages of the CELIAPP even if I don’t really intend to become an owner one day?
Yes, it is partly possible. But 15 years after opening the account, you will have to close it, like someone who changed their mind along the way. The contributions and the return obtained can then be transferred without tax impact to your RRSP, even if you do not have the space to do so. A RRIF can also collect funds accumulated in a TFSA. When you withdraw funds from your RRSP (or RRIF), however, they are added to your taxable income. One of the advantages of the CELIAPP is therefore lost.
Once my first CELIAPP is closed, can I repeat the same strategy to pay even less tax?
Unless you have exceptional resurrection power, it won’t be possible. You are only entitled to one TFSAPP per lifetime.
How will we be sure that I will indeed use the funds from my CELIAPP to buy a property?
To withdraw the amounts without adding them to your taxable income, you will have to provide written proof that an agreement has been concluded for the purchase of a property on Canadian soil or land to build. The date of acquisition or completion of construction must precede the 1er October of the year following the date of withdrawal. In addition, it will be possible to combine the RAP and the CELIAPP. And this is for both spouses.
Since the TFSA is more tax-efficient than the TFSA and the RRSP, can I use the amounts in my TFSA and my RRSP to fill my TFSA?
Indeed, the CELIAPP combines the advantages of the TFSA and the RRSP: the contributions give right to a deduction which reduces the taxable income (like the RRSP) and the withdrawals for the purchase of a property are not taxable (like the TFSA) . If you take $8,000 out of your TFSA and put it into the TFSA, you’ll get a tax refund and you can put that $8,000 back into your TFSA the following year. But beware, this is not the case with the RRSP: the contributions withdrawn are never recoverable and you will not be entitled to a second tax deduction. Someone might still want to transfer money from their RRSP to the TFSA before buying a property to avoid repaying the amount using the HBP.
Who should rush to open a CELIAPP?
Those who can afford to contribute. Because unused contributions do not accumulate over the years like those of RRSPs and TFSAs. Contributions are permitted for 5 years, at the rate of $8,000 per year, for a maximum of $40,000. And you can only go back one year. So, it’s not wise to open the account if you don’t have money to put in, because you risk losing precious years of contribution.
I want to help my children or grandchildren become owners, can I open a CELIAPP for them?
No, that’s not possible. You can open an RESP (Registered Education Savings Plan) to help a child financially fund their education, but you can’t do the same thing with the TFSA. Only the person who qualifies for the purchase of a property can open this type of account. Nothing prevents a parent or grandparents from making a donation which will then be paid into a TFSA. This sum could also come from an RESP, so that the same money would make children twice.
My child is starting his career, his income is not very high and neither is his tax rate. If I complete his TFSA, he will not be entitled to an attractive tax refund. Should he wait?
Nothing prevents him from postponing his deduction when his income has jumped! This could be very advantageous, especially if your child is waiting to have… a child. The drop in his taxable income (thanks to the CELIAPP contribution made several years earlier) may increase his family allowance. This strategy can also be used with RRSP contributions, which is often overlooked. By contributing early, the money grows tax-free longer. In addition, if your child falls in love with an owner, he will no longer be able to open a CELIAPP.
Can I open a CELIAPP on Monday morning?
No, the financial institutions are not ready yet. Desjardins has announced that it will open TFSAs during the summer, BMO, “in mid-2023”, National Bank, “in spring 2023”. In the meantime, Desjardins has invented, for the impatient, the pre-CELIAPP! This is a 4.65% term savings account in which you can deposit your future CELIAPP contribution.
What investments can be put in this registered account?
The choice is vast: term deposits, GICs, government or corporate bonds, mutual funds, exchange-traded funds, stocks.