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The 2022 Budget introduced a new Tax-Free First Home Savings Account (FHSA). Effective April 1, 2023, the FHSA program provides prospective first-time home buyers the ability to contribute a maximum of $40,000 and claim tax deductions for the same (including investment income earned inside the account).
Who can open FHSA
To qualify you must:
• Be a resident of Canada.
• Be at least 18 years old.
• Not have lived in a home that you or your spouse/common-law partner owned in the year the account is opened, or the previous four years.
How much can I contribute:
- Eligible Canadians can contribute up to $8000 annually, subject to a maximum $ 40,000 lifetime limit.
- Carry forward will only start accumulating when an individual opens an FHSA account. Unlike a Tax-Free Saving Account (TFSA), where the limit accumulates each year whether you open a TFSA account or not.
- After account opening, unused contributions will carry forward to future years and the maximum participation period will end at the end of the 15th year from the year account is opened.
Who can contribute to my FHSA?
- You are the only person that can contribute to your FHSA. A family member or spouse cannot make contributions to your FHSA.
- But you can contribute to your own FHSA using funds gifted to you by a spouse or family member without attribution rules applying or vice-versa.
How much can I withdraw:
• All original investments plus any profit generated by the funds can be used towards the purchase of a qualified home.
• Funds withdrawn for any purpose other than to purchase a qualifying home will be fully taxable.
• Where you are purchasing a qualified home with a spouse/common-law partner, you both can use funds from your own FHSA towards the purchase. It will essentially double the amount of money that can be put toward buying the home.
Key Difference between first-time home buyer plan (HBP) and FHSA:
- The HBP allows an individual to withdraw up to $35,000 from the RRSP account to buy their first-time home. However, the money withdrawn must be repaid within 15 years.
- For FHSA, at least theoretically, there is no limit because the original $40,000 plus any return on the investment may also be used towards the purchase of a qualified home.
- Money withdrawn from the FHSA does not have to be repaid, unlike RRSP.
An important thing to keep in mind is that a taxpayer can now access both the FHSA and Home Buyers’ Plan (HBP) in respect of the same qualifying home.
Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.
