An FHSA is a new type of savings account introduced by the federal government that provides tax advantages for first-time homebuyers. Provided qualifications are met, the money is tax-free, both when deposited and withdrawn from the account.
A person can open an FHSA account if they are:
Note that the qualifications for opening an FHSA account differ from those for withdrawing from one, as discussed below.
An FHSA can be opened with an authorized issuer (such as a bank, credit union, trust, or insurance company). Note that many authorized issuers are not yet set up to open FHSA accounts.
The tax-free advantage is available for deposits of up to $8,000 per calendar year with a $ 40,000-lifetime limit. A person can carry forward any part of the $8,000 that is not used in a given year.
Only the holder of the FHSA can claim the related tax deduction; common-law partners are not allowed to participate in each other’s accounts.
Can A First Time-Home Buyer USE the FHSA, RRSP & TFSA simultaneously?
According to CRA, the answer is yes. Please refer to the following article.
The ability to combine both your Home Buyer’s Plan (HBP) with the FHSA is interesting.
With the HBP, you can withdraw up to $35,000 from your RRSP tax-free. This is a great incentive for potential homeowners, but you must repay yourself over 15 years, unlike the FHSA.
When the FHSA legislation was first announced in August 2022, it stated that you had to choose between the two. Even though the FHSA was clearly the better account, it likely wouldn’t be able to help those looking to buy soon because there’s a limit on annual contributions.
But when the legislation passed in December, that limitation wasn’t included. The Canada Revenue Agency confirmed that a prospective buyer could withdraw from their FHSA and RRSP with the Home Buyers’ Plan.
A withdrawal is tax-free if the person:
To avoid unfavourable tax consequences, a person must close their FHSA on the earliest of the following dates, with the time starting from when the account was opened and ending on December 31 of the year in which the earliest of the following occurs:
Not all the finer details of the FHSA program are covered in this summary. A fuller description can be found here: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html
Please note as of today, FI’s are informing us that they will not be ready to open accounts until Q4 of 2023.
The information in this writing is not intended as legal advice.