As CELIAPP is a rather new tool, more and more people are integrating it into their financial strategy, to meet different objectives. Here are five important mechanics to understand to get the most out of it.
Published at 5:00 a.m.
What is CELIAPP?
The tax-free savings account for the purchase of a first home (CELIAPP) is a registered plan that allows you to save tax-free. In addition, contributions made can be deducted from taxable income.
- Annual contribution rights: $8,000 (deferral possible, for a maximum of $16,000 in contributions per year)
- Lifetime contribution limit: $40,000
- Eligibility: residents of Canada aged 18 to 71 who have not had as their principal place of residence a home or dwelling owned by themselves or their current spouse during the current calendar year and all four calendar years previous ones.
Once the CELIAPP is opened, the money found there can be invested in different investment vehicles. It is also possible to manage the investments in a CELIAPP account yourself on several brokerage platforms such as Disnat, Banque Nationale Direct Courtage, Questrade or Wealthsimple.
If funds are withdrawn from CELIAPP to purchase an eligible home, they are not added to taxable income. There is no minimum period during which the money must remain in the CELIAPP before being withdrawn for such use.
1. Rights only accrue from the year of opening
The contribution room of $8,000 per year only becomes available from the calendar year in which a CELIAPP account is opened.
That is to say, if a person eligible for CELIAPP opens their account by the end of 2024, they will have $8,000 in contribution room for this year, then $8,000 in 2025, for a total of $16,000. . But if she waits until January to open it, she will only have the $8,000 for 2025.
This mechanism is important to know, because this is not how the accumulation of TFSA and RRSP contribution room works. In the first case, rights begin to accumulate automatically as soon as you turn 18, and in the second case, as soon as you have work income.
If you want to buy a property in the coming years and are eligible for CELIAPP, it is in your best interest to open it as soon as possible.
2. A duration limited to 15 years
Be careful, however, not to open a CELIAPP too early, because it has a limited duration of 15 years. At the end of this period, if there is no home purchase, the money can be withdrawn (but it will be taxed as income) or transferred to an RRSP (without being taxed or affecting the rights of contribution).
Yes, 15 years may seem like a long time. But a young person who opened a CELIAPP at the age of 18 would still find themselves with a plan which expires at the age of 33, an age at which many people have not yet bought their first house.
If the goal is still to buy a house, you can still use this money from the RRSP using the homeownership plan (RAP). But if we do this maneuver, we lose certain advantages specific to CELIAPP.
PHOTO CHARLES WILLIAM PELLETIER, ARCHIVES SPECIAL COLLABORATION
Simon Houle, independent financial planner and member of the ÉducÉpargne board of directors
The RAP must be repaid to the RRSP, but the amount withdrawn from the CELIAPP for the purchase of a first principal residence does not have to be repaid.
Simon Houle, independent financial planner and member of the ÉducÉpargne board of directors
So if you withdraw $40,000 from a CELIAPP to buy your house, that’s it, you don’t have to think about it again. But if you withdraw $40,000 from your RRSP through the RAP, you must plan in your budget to put this money back into the RRSP within a period of 15 years (the start of which varies between 2 and 5 years after purchasing the house, depending on the date of purchase).
Another thing that happens if you transfer your CELIAPP into an RRSP is that you lose the opportunity to combine it with the HBP (see next point).
3. Combine CELIAPP and RAP
It is possible to combine the CELIAPP and the property access plan (RAP), which allows you to use up to $60,000 from your RRSP to purchase your first property.
So if you have contributed to the maximum, you can use the $40,000 invested in the CELIAPP in addition to the return to buy a house, as well as the $60,000 from the RRSP (with the RAP). That still gives us a total of $100,000 in addition to the CELIAPP return.
However, if we have exceeded the 15-year limit and have transferred our CELIAPP to our RRSP, we can only use the HBP, of a maximum of $60,000.
This can be a shame if, for example, you want to make a large down payment to buy a high-priced house, or to have a smaller mortgage loan.
In addition, as we saw in the previous point, you will eventually have to repay the amount in your RRSP account.
4. CELIAPP to increase your RRSP space
Transferring your CELIAPP to your RRSP is not ideal if you are about to buy your first property, but there may be advantages in other situations. This transfer does not affect RRSP contribution room. It is therefore possible to use the CELIAPP to increase your RRSP space by $40,000, regardless of your real estate purchase intentions.
This can be interesting for someone who qualifies for CELIAPP, but who plans to never buy a house, for example someone who is a tenant and happy in this situation. It could also be someone who had opened a CELIAPP account before meeting a spouse who is the owner with whom they will live.
This maneuver can also benefit people who have sold their house, retired or separated, and who have been renting their main residence for the last four calendar years (in addition to the current one).
The amounts would be transferred to an RRSP after 15 years (or when the CELIAPP holder reaches the age of 71) and could be used like the rest of it.
5. Pay attention to the spouse
Another aspect is worth highlighting because it can make a big difference.
Living as a couple (married people or common-law partners) can influence our eligibility for CELIAPP, because we cannot open such an account if our main place of residence is a house or accommodation belonging to our husband or partner. in fact.
However, if our account is already open, we can continue to contribute and possibly withdraw the funds, even if we live in a house belonging to our spouse.
Consequently, if you are eligible for the CELIAPP and are thinking of moving in with a partner who owns a property, it may be interesting to open a CELIAPP before moving in (or to become a de facto spouse after 12 months of living under the same roof) to be able to benefit from this tool if we need it in the future.
