As the end of the year approaches, there are only a few days left to take advantage of a host of tax strategies. If you plan to buy a property in the years to come, now is the time to open a CELIAPP. We explain to you what it is and how it works.
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What exactly is a CELIAPP?
Launched in 2023 by the federal government, the Tax-Free Savings Account for First-Time Home Buyers (CELIAPP) allows Canadians aged 18 to 71 to put money aside for purchase of a first property.
Please note: you cannot have owned your main residence the year the CELIAPP opened nor in the four previous years. You also cannot have had as your main residence a property that your spouse owned for the same period.
How does it work?
Each year, you can contribute up to $8,000 to a CELIAPP, up to a maximum of $40,000 for life.
Make sure you don’t exceed the contribution limits, otherwise you will have to pay tax on the excess amounts. We are talking about 1% per month on the highest CELIAPP surplus for that month, until the surplus is eliminated.
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To open one, go to any financial institution that also offers the TFSA.
It is also possible to transfer money accumulated in an RRSP to a CELIAPP without immediate tax consequences – provided that it is a direct transfer and that you respect the contribution limits. To do this, you must contact the financial institutions where you hold these accounts.
What are the advantages?
The CELIAPP is really a combination of the advantages of a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA).
Like the RRSP, the amounts you invest in your CELIAPP are tax deductible.
However, the contribution rights – the famous $8,000 per year – only begin to accumulate from the year in which the CELIAPP is opened, unlike the RRSP and the TFSA. It is therefore better to do it sooner rather than later to be able to accumulate the sums quickly.
Like a TFSA, the amounts you withdraw from your CELIAPP when the time comes to acquire a property are not added to your taxable income.
And like other savings accounts, registered or not, the CELIAPP is a vehicle that allows you to grow your money using eligible investments. The returns you get on these are also tax-sheltered.
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What happens if I never buy a property?
You are 15 years old from the year you opened a CELIAPP to purchase an eligible property. But you will obviously not lose your savings if you do not become an owner before this date.
The money in your CELIAPP can be transferred to an RRSP without affecting the contribution limits. If you withdraw them without purchasing a property, the amount will be added to your taxable income.
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