The new CELIAPP: a good idea

9 avril 2022

The best investment in life for most people who, of course, can afford it, is buying a property as their principal residence.

This is why I am strongly in favor of the new TFSA (Tax-Free Savings Account for the purchase of a first property) which will come into force next January, in 2023. And which, five years later, could allow a future Quebec buyer to accumulate more than $40,000 in capital, while benefiting from tax savings of $14,000 to $15,000 if he earns between $50,000 and $100,000 per year.

Important parenthesis: I assume here that the other provinces, including Quebec, will follow suit and also grant a provincial deduction on contributions to the TFSA, as they do for the RRSP.

With the CELIAPP, Justin Trudeau and his Minister of Finance, Chrystia Freeland, will thus give a good tax boost to Canadians aged 18 and over who wish to acquire a first home. By first property, we mean "not having lived in a property" which belongs to us in the year of the opening of the CELIAPP and during the four preceding calendar years.

THE MECANIC

Contribution to the TFSAPP is capped at $8,000 per year, in addition to being subject to total lifetime contributions of $40,000. By contributing to the CELIAPP, people will benefit from a tax deduction.

The capital accumulated in the CELIAPP can be used tax-free when acquiring the property. The term of use of the funds is 15 years.

At the price that houses cost today, the slightest financial assistance can only help future owners realize the dream of having their own home.

NOT FOR EVERYBODY

Now, the new TFSAPP is fiscally relevant provided that future holders earn enough income to ultimately have to pay taxes, both federal and provincial. In her budget, Minister Chrystia Freeland cites as an example a household each earning between $50,000 and $100,000, and whose federal tax rate is 20.5%.

If each member of the couple makes an annual contribution of $8,000, this will entitle each to a federal tax deduction of $1,640. In Quebec, due to the tax abatement, the federal tax rate is 17.12% for these taxable income brackets. Which would provide, in this example, a federal deduction of $1,370.

And if Quebec follows suit as expected, the holder of the TFSA will benefit from an additional provincial deduction of 20% per tranche of investment in the TFSA. An annual contribution of $8,000 would yield a provincial deduction of approximately $1,600.

For each $8,000 contribution to the TFSA, a Quebec taxpayer would save a total of $2,970 in taxes ($1,370 federal, $1,600 provincial). On the maximum lifetime contribution of $40,000 in the TFSA, the potential tax rebate would be around $14,850 for a Quebec taxpayer earning taxable income ranging from $50,000 to $100,000.

I don't think the CELIAPP will generate real estate overheating.