You’ve probably heard about the First Home Savings Account (FHSA). But what is it and how can it help you achieve your dream of home ownership? Here’s everything you need to know about the FHSA and how it can get you into your first home.
The FHSA was announced by the Government of Canada in the 2022 federal budget. It’s a registered savings account designed for first-time home buyers. FHSAs offer the benefits of both tax deductions on your contributions AND non-taxable earnings!
What are the Benefits of a FHSA?
- Your contributions can be claimed as a deduction on your annual income tax return. (like an RRSP)
- Any interest or dividends you make, as well as withdrawals, are completely tax-free (like a TFSA) as long as they are used toward the purchase of a qualifying home.
- Funds left in the FHSA that aren’t used towards the purchase of a home, can be transferred to an RRSP or RRIF tax-free.
- You can fill your FHSA with a variety of investments such as cash, GICs, mutual funds*, stocks*, or bonds*.
Am I eligible for a FHSA?
- You must be a Canadian resident between the ages of 18 and 71 years of age.
- You or your spouse must be a first-time home buyer who hasn’t lived in a qualifying home in the current year or anytime in the preceding 4 years.
How much can I contribute to my FHSA?
- The rules for contributing and withdrawing funds from your FHSA have been outlined by the Government of Canada.
- You can contribute a maximum of $8,000 to your FHSA in the first year you open it, and in each subsequent year.
- Your contribution limit includes any funds you transfer from your RRSP.
- Your lifetime FHSA limit is $40,000.
How long can I keep my FHSA?
- You have a maximum of 15 years from the time you open your FHSA, or the end of the year in which you turn 71, until you need to withdraw the funds from your FHSA.
What is a qualifying withdrawal?
- You must be a first-time home buyer and a resident of Canada at the time of purchasing your qualifying home.
- A qualifying home must be located in Canada.
- It can be part of a co-op or a condo.
- You must have a written contract to build or buy a home before October 1 of the year following the year of withdrawal.
- You must occupy that home as your principal place of residence within one year of building or buying it.
What if I don’t end up buying a home?
You have two options if you don’t end up buying a home:
- You can transfer the funds to your RRSP or RRIF within 15 years or at the time you need to close your FHSA. This will not affect your RRSP contribution room.
- You can withdraw the funds, but they would be subject to withholding taxes.
How is this different from the Home Buyers’ Plan?
- The Home Buyers’ Plan allows you to withdraw up to $35,000 from your RRSP towards the purchase of a home, but these funds need to be paid back to the RRSP over 15 years.
- The FHSA funds do not need to be paid back to the RRSP.
- The FHSA and Home Buyers’ Plan can be used together for funds required to purchase your first home.
If you are currently saving for your first home, speak with a member of Kindred’s Wealth and Investment team to find out how a First Home Savings Account might help you get into a home of your own faster.
Find out more about First Home Savings Accounts and sign up to be notified as soon as these accounts become available from Kindred.
* Mutual funds are offered through Qtrade Asset Management (a tradename of Credential Asset Management Inc). Mutual funds and other securities are offered through Qtrade Advisor, a division of Credential Qtrade Securities Inc. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.