CELIAPP: an interesting tax solution even if you don’t want to buy real estate?

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LE COURRIER DE SÉRAFIN is a section that presents twice a week a user’s personal finance question, followed by an answer from Sérafin, an AI specializing in personal finance in Quebec. Everything is accompanied by a verification comment or addition from a financial professional.

Serafin’s answers

The strategy of contributing to your CELIAPP followed by a rollover to your RRSP in 15 years is a significant opportunity to maximize your retirement savings while optimizing your tax situation. Here’s how this approach can be beneficial:

Tax and strategic advantages

Tax deferral: by transferring funds from your CELIAPP to your RRSP, you will defer taxation until you withdraw from the RRSP, or in a lower tax bracket at retirement.

Tax deduction: A special feature of CELIAPP is that contributions are tax-deductible, which reduces your taxable income from the year of contribution.

Contribution capacity and RRSP planning

Exceeding the unused contribution limit: one of the most significant benefits of this strategy is that transferring the CELIAPP to your RRSP allows you to exceed the unused RRSP contribution limit without negative impact. This means that you can potentially increase your retirement savings above the usual RRSP limits by making initial contributions to CELIAPP.

Investment strategy and timing

Location Optimization: consider wise investments within your CELIAPP to maximize your pre-transfer savings, keeping in mind your long-term financial goals and risk tolerance.

Transmission Timing: a financial advisor can help you determine the optimal time to transfer based on your financial situation, market conditions and your retirement tax projections.

Professional consulting

It is essential to consult a financial advisor to develop a tailor-made strategy. This will help you navigate your contribution options, tax implications and effectively plan this transfer as part of your overall retirement plan.

In conclusion, a CELIAPP contribution followed by an RRSP rollover is an advanced strategy that allows you to significantly increase your retirement savings by making the most of available tax benefits without negatively impacting your unused RRSP contribution limit. It is a proactive approach to successful financial planning that maximizes the use of your long-term savings.

Answer from Patrick Lagrange, Financial Planner

CELIAPP is a first-class tax solution for the first-time buyer. It can still be an interesting tax solution if you don’t want to buy real estate. Recently, a pharmacist client came to see me. She works for an agency and is currently 25 years old. She took the opportunity to work as much as possible until the age of 32 to achieve her goal of buying a pharmacy. With a salary of $300,000, she set up CELIAPP to get an additional tax return in addition to the maximum contribution to her RRSP. His plan is simple. Accumulate your retirement fund as quickly as possible so that you can benefit from compound interest for as long as possible and accumulate the capital expenditure necessary to acquire your business. Once she becomes a homeowner, she plans to pay herself a salary that represents her living expenses to speed up her loan repayments. Salary around $80,000. That’s when we will plan to transfer from CELIAPP to RRSP as he currently saves 53.31% in tax by contributing to CELIAPP and RRSP. When she owns it, her marginal tax rate will be 36.12%. Once CELIAPP is transferred and her business loan is paid off, she will be able to increase her salary again to enjoy life and increase her contributions to her RRSP or retirement fund.

CELIAPP might be a good choice, but there are several others. We are talking about proper asset allocation here.

Using your TFSA as long-term savings can become a powerful tool for investing until retirement. Very often, a TFSA is used as an emergency fund and invested with low returns. With a TFSA you never pay tax, this is a great opportunity to consider a TFSA as a tax-advantaged investment vehicle compared to other plans. For example, for an investor, why not consider investing the growth portion in a TFSA followed by a more prudent strategy in an RRSP. Since no future taxes will have to be paid in the TFSA, we should have the largest gains in our portfolio.

If the investor is a business owner, he can take the opportunity to contribute to the Executive Retirement Plan, RRE. He will then be able to buy back his past service and benefit from compensatory allowances while still getting deductions from his company. So he will be able to invest $1,500,000 more than in the RRSP and save $500,000 in additional fees and taxes.

If all tax regimes for savings are maximized. There is always the option of putting together an estate plan that would also enhance retirement.

How? By using participating life insurance.

In addition to the potential increase in value of your life insurance policy, your cash value also increases each year. For example, an investor is 35 years old and is able to save $700 per month personally or through his company to subscribe to a $300,000 participating life insurance policy payable over 20 years. At age 75, he will have access to a surrender value of more than $700,000. This value can be used to increase the pension. If the person wishes, the insurer can pay contributions to the annuity instead of increasing the insurance. At that time, the insurance coverage will be $1,000,000 instead of $300,000 and will potentially generate dividends of $25,000 per year.

Finally, it is important to calculate the entire portfolio after taxes as well as the returns. It is difficult to know what is the most tax-advantaged today and in retirement. This cannot be done with a simple calculator or Excel spreadsheet. It is therefore important to use combined planning tools that optimize tax regimes, accumulation and withdrawals to build as much wealth as possible year after year until age 95, if you wish.

Have more personal finance questions? Go ask Sérafin and who knows, your questions might be published here!

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