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CELIAPP | Hey, young people, prepare your bidous

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Hey, young people, you absolutely must contribute to the CELIAPP. To what ? At the CELIAPP, this new tax product launched by the federal government that combines the advantages of the RRSP and the TFSA.

TFSA is an acronym for “Tax-Free Savings Account for First-time Home Buyers”. It will enter into force on 1er April 2023, in less than three months.

Why contribute absolutely? Because the funds that are paid into it entitle you to a juicy tax refund, as in the case of an RRSP. And in addition, the accumulated funds and their returns will not be taxed upon withdrawal, as in the case of a TFSA, if they are used to purchase a first property. Not bad is not it ?

What if you never buy a property? No problem: the funds can be transferred to your RRSPs without tax consequences.

The rules and advantages of the CELIAPP can be found in a twenty-page analysis by the Chair in Taxation and Public Finance at the University of Sherbrooke. The authors are Luc Godbout and Nathalie Hotte.

Of course, this vehicle is not used to save to finance your next trip or to buy a car. And those who already own a condo or a house are basically not eligible.

But for others, it allows you to pay up to $8,000 a year to build up a down payment for the purchase of a first property. And again, not really $8,000, since the injection into a CELIAPP entitles you to a generous tax deduction, like an RRSP. This deduction amounts to $3,710 for those who have a gross personal income varying between $50,197 and $92,580.

In short, for $8,000 of contributions, the net cost is $4,290 once the tax refund is taken into account. Oh yeah?

Contributions cannot exceed $40,000, at most. It is therefore necessary to plan 5 years to get there if you contribute the annual maximum of $8,000.1. In addition, the property must be purchased no later than 15 years after the opening of the TFSA (otherwise transfer the funds to an RRSP).

$118,000 down payment

The beauty of the deal is that the $40,000 investment will yield returns. For example, after 5 years and an annual return of 5%, the $8,000 invested per year will be worth more than $46,000. And after 10 years, over $59,000.

That’s not all. Two spouses who buy a property together can combine their TFSAs, so the down payment after 10 years would total over $118,000. wow!

Oh, before you forget, another advantage: TFSA payments will not reduce RRSP contributions that have accumulated since you worked and are unused.

And if you transfer the TFSA to your RRSPs, there’s no need to have RRSP space available, since the funds are added to the prescribed RRSP contribution limits (18% of annual income earned, maximum of $29,210 in 2022 ).

This rule means that those who have a retirement plan with their employer will be able to accumulate funds in a TFSA, even if, as is currently the case, contributions to the retirement plan have the effect of partially reducing or all of the contributions they can make to the RRSP.

Co-author Luc Godbout, professor at the University of Sherbrooke, advises contributing as quickly as possible to the CELIAPP for two reasons.

First, because a taxpayer who lives with a person who owns a property is not eligible to open a TFSA. In other words, a tenant has every interest in opening a CELIAPP before meeting a soul mate who owns a condo, for example.

This is all the more true since the rules allow taxpayers to continue contributing to the CELIAPP even if they live with a spouse who owns property, provided that the CELIAPP was opened before the cohabitation. The reasoning also applies to a taxpayer who inherits his parents’ house, for example.

The second reason to quickly open a CELIAPP, according to Mr. Godbout: a possible change in the federal party in power. In 1985, a similar vehicle was abolished when the Conservative Party took power.

By the way, it’s not just young people who are eligible for the CELIAPP. The federal government has decided to extend it to people aged 18 to 71. In addition, it targets Canadians “who have not lived in a qualifying home or owned one, in the part of the year preceding the opening of the CELIAPP and in the four preceding years”, it is explained in the Chair’s analysis.

In other words, a person who sold his property five years ago or more may be eligible for the TFSAPP.

Another aspect: the CELIAPP can be combined with another vehicle, the Home Buyers’ Plan (RAP). The HBP allows a taxpayer to withdraw up to $35,000 from his RRSP to buy a first property (this amount must however be repaid to the RRSP over 15 years, otherwise it becomes taxable).

So, are you ready, young people?

1. It is allowed to defer some or all of the contributions to subsequent years (for example deferring $2000 from year 1 to year 2, which would make $10,000 in year 2 instead of $8000 $).



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