Search KelownaNow
The First Home Savings Account (FHSA) is a new tax-free savings vehicle introduced in the 2022 Federal budget to assist eligible Canadian residents in purchasing their first home.
We’ve developed this article for information purposes only. Information about FHSAs is based on what is currently available from the Canadian government and can be subject to change.
If you’ve been dreaming of purchasing your first home, you know the prospect can feel at once exciting and daunting. One of the biggest barriers standing in the way of home ownership: saving enough for a down payment.
In an effort to help more Canadians enter the housing market, the Government of Canada introduced a new registered plan through its 2022 budget, called the Tax-Free, First Home Savings Account (FHSA). Through the new account, prospective home buyers can save up to $40,000 tax-free for the purchase of their first home. The FHSA is packed with powerful benefits that can help you save faster than ever before and will come into effect at some point in 2023.
The FHSA is a registered plan designed to help first-time homeowners save for a down payment. It combines the very best features of a registered retirement savings plan (RRSP) and tax-free savings account (TFSA).
There are also certain duration requirements for the First Home Savings Account. Accounts can stay open:
Getting started is half the work. To open an FHSA, you must be:
Grow your savings, not your taxes. The First Home Savings Account has four powerful incentives:
Now, we’ll dig deeper into the fine print of contribution limits and deductions.
Let’s get down to the details. An account holder must meet certain conditions to withdraw money tax-free. You must:
When funds are withdrawn, FHSA contribution room is not reinstated.
As you may know, the Home Buyers’ Plan allows you to take $35,000 from your RRSP without being taxed to use for your first home. The caveat: you must pay what you borrowed within 15 years.
This is a core difference from the FHSA, which does not need to be paid back to the account. It’s also worth noting that you can use both the FHSA and Home Buyers’ Plan for your first home!
Change happens. So, what do you do if your circumstances shift, and you no longer need to purchase or build a home?
You can transfer any savings from your FHSA into a RRSP or Registered Retirement Income Fund (RRIF). This transfer is done on a tax-free basis. Your savings are only taxed when they are withdrawn and not used for a first home purchase.
Once the money is withdrawn, it does not need to be repaid.
Of course. Meet Charlotte—a 30 year old who wants to buy her first home. If Charlotte plans to buy a home in the next 15 years, an FHSA may be an excellent option for her to save for a down payment. That’s because she can take advantage of annual tax deductions, while investing and growing her savings tax-free at the same time.
If Charlotte changes her mind at any time and decides she won’t be buying a home, she can transfer the money from her FHSA to her RRSP. However, she will need to pay tax on the money once she starts to withdraw from her RRSP or RRIF.
By allowing you to save up to $40,000 (or up to $75,000 if combined with the Home Buyers’ Plan) tax-free and providing tax deductions, the FHSA can help you realize your home ownership dreams. As many Canadians grapple with climbing real estate prices, it’s certainly an investment tool that’s worth considering.
We’ve covered some of the most common questions about the First Home Savings Account in this piece. To learn more or check for updates, please visit the Tax-Free First Home Savings Account information page on the Government of Canada website.
Please ensure your FHSA, TFSA and RRSP contributions are within your allowable limits set by Canada Revenue Agency (CRA) and you are solely responsible for confirming that any such contributions are within your allowable limits. All rules and contribution limits for as set out by CRA and applicable legislation apply. Information about FHSAs is based on what is currently available from the Canadian government and can be subject to change.
Mutual funds, other securities and securities related financial planning services are offered through Qtrade Advisor, a division of Credential Qtrade Securities Inc. Financial planning services are available only from advisors who hold financial planning accreditation from applicable regulatory authorities. Mutual funds and related financial planning services are offered through Qtrade Asset Management (a tradename of Credential Asset Management Inc).
If you get value from KelownaNow and believe local independent media is important to our community we ask that you please consider subscribing to our daily newsletter.
If you appreciate what we do, we ask that you consider supporting our local independent news platform.