Recently the government of Canada announces the launch of a First Home savings account which is geared towards first-time home buyers and designed to help them save for their down payments. The best way to understand the function of a FHSA is that it combined certain features of an RRSP with that of a TFSA. For example, it includes an element of a tax deduction based on the eligible contributions made toward the FHSA. It also allows you to make eligible withdrawals without any taxable accountability. As you can see, the former benefit of “tax deductions” mirrors an element of an RRSP, while the latter mirrors a feature of a TFSA (non-taxable withdrawal)
Who’s eligible? – It’s very simple. To be eligible under this program you must be:
- A Canadian resident
- 18 years of age or older
- A first-time home buyer – someone who has at anytime part of the calendar year before the account is opened or at any time in the 4 years prior, not lived in a home you also own. In other words, if you have not owned a home (or your spouse) in the past 5 years, you are considered a 1st-time buyer under this program.
What about contributions and deductions?
- Currently, the contributions are limited to $8000 per year, to a lifetime contribution limit of $40,000. Remember, contribution doesn’t mean that your account can’t grow from the various investment vehicles (i.e. stocks, bonds, etc.)
- Individuals can claim income tax deductions for the FHSA when they file their taxes. The tax-deductible credits do carry forward, so you can carry forward any unused credits for future use.
- A maximum of $8,000 unused contribution room can be carried forward to the following year.
Other notable features:
- You can transfer funds from your RRSP to your FHSA without any tax consequences. You still need to adhere to the annual and lifetime contribution limits and these transfers are not deductible from your income (you can’t double dip tax deductions by contributing to your RRSP and then Transferring to your FHSA and trying again).
- Transferring from an RRSP to an FHSA does not restore your RRSP contribution room.
- The FHSA can be used in conjunction with the Home Buyers Plan (HBP)– which allows you to withdraw up to $35k from your RRSP towards your purchase. Unlike the Home Buyers plan, however, you do not have to pay back any funds that you used from your FHSA for your purchase. (HBP requires you to repay what you used within 15 years).
- Unlike an RRSP, your FHSA contribution room doesn’t grow based on your annual earnings.
As always, we encourage you to understand your options and if you would like to learn more about this program, feel free to visit the government of Canada on this topic – https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html
Alternatively, If you’d like to learn more about this program in conjunction with your purchase goals, feel free to give us a call – at 905-455-5005