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The First Time Home Savings Account (FHSA)

April 3, 2023
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The First Time Home Savings Account (FHSA)

Canada announced a brand-new account for Canadian Residents to save for their first home purchase, which began April 1st 2023. The Tax-Free First Time Home Savings Account (FHSA) adds yet another financial account acronym for Canadians to wrap their head around. So what is it? 

The FHSA combines the best of Registered Retirement Savings Plans (RRSP) and Tax-Free Savings Accounts (TFSA) to save towards a home purchase. 

Contributions made into a FHSA are tax deductible, just like RRSP contributions. Growth of your investments are sheltered from tax, and withdrawals from the FHSA are tax-free (like a TFSA)… in summary the FHSA allows you to fully bypass income taxes on money earned & invested for a home purchase. 

To be eligible to open a FHSA, you must be a resident of Canada between the ages of 18-71 and you (and your spouse) must be first-time home buyers (defined as not owning a home in the current year + 4 previous years). 

How much can you put in? The annual contribution limit to a FHSA is $8,000/yr with a lifetime contribution limit of $40,000 per individual. However,unlike RRSPs, your contribution room only starts once you open a FHSA. Unused contribution room carries forward to future years, so it is in your benefit to open one right away even if you only put a small amount in. 

Can you use the FHSA and Home Buyers Plan (HBP)? Yes, you could use both of these accounts for the same home purchase. Withdrawals made under the FHSA and the HBP can be made for the same home. HBP withdrawals are borrowed against your RRSP and must be paid back in 15 years, where as FHSA withdrawals are tax free with no need to repay.  

What can you invest in? Qualified investments include mutual funds, exchange traded funds (ETFs), public securities, bonds and GICs. 

What happens when I close my FHSA? Unused funds inside the FHSA can be transferred to an RRSP on a tax-free basis, or the FHSA can be withdrawn but the withdrawal will be taxable. 

In summary, it appears there is really no downside to the FHSA for those eligible to open one right away and it would be the first account recommended for those saving for their first home. 

If you would like more information, please feel free to contact us or visit https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html 

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