Maximizing Your Savings with CELIAPP for Homeownership

What is the CELIAPP?

This famous new savings account everyone is talking about. Well... the CELIAPP - the tax-free savings account for the First Home Savings Account (FHSA) is a new product created by the federal government. This tax-free savings account for the purchase of a first property will come into effect on April 1st, 2023 and entitles you to a solid tax deduction.

FHSA: ‘’First Home Savings Account”
This account combines the benefits of both the RRSP and the TFSA.
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RRSP benefits: Funds deposited are tax-deductible
TFSA benefits: When buying a property, funds accumulated and their returns can be withdrawn without being taxed.

The FHSA allows you to contribute up to $8,000 per year to build a down payment for purchasing a first property.

A little perspective

In 2023, those whose gross personal income ranges from $50,197 to $92,580 can benefit from a $2,970 deduction for their $8,000 in contributions. This means that after the tax return, the net cost of the $8,000 in contributions is actually $5,030.

Limitation

Cumulative contributions cannot exceed $40,000 and you must purchase a property within 15 years of opening the FHSA.

What happens if I don’t purchase a property within the 15 years following the opening of my FHSA? Well, the funds will simply be transferred into your RRSP.

The magic of the FHSA

The beauty of this savings account is that it can be combined with other long-term savings vehicles, such as the Home Buyers' Plan (HBP). And even better, contributing to the FHSA does not limit your contribution to the RRSP. When purchasing a property you can then withdraw $40,000 from your FHSA without repayment and up to $35,000 from your RRSP without any tax implications and repay these funds over a set period of time.

Is it possible to withdraw more than $40,000?
Ah, well yes! The return generated by the FHSA is tax-free. So, depending on the return rate and the gains made, it is possible to withdraw more than the total of the contributions - that is, $40,000.

Who is eligible for the FHSA

The FHSA is open to people from 18 to 71 years of age who have not been owner-occupants of a home in the year of opening the account or in the four preceding civil years.

The FHSA is an excellent offer for those who wish to increase their long-term savings and access property someday.

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Source
Analysis from Chaire en fiscalité et en finances publiques from Sherbrooke University