In Canada, the struggle to find affordable housing is no secret. Prices seem to continue to rise post-pandemic and more and more people continue to get priced out of the housing market. To combat the housing market crisis, the federal government introduced First Home Savings Account (FHSA) as part of its 2022-23 budget. As of April 1, 2023, Canadians can take advantage of this account which combines elements of Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs), offering unique advantages for those saving towards their first home.
FHSA – An overview
A first home savings account (FHSA) is a registered plan which allows you, if you are a first-time home buyer, to save to buy or build a qualifying first home tax-free. The FHSA offers prospective first-time home buyers the ability to save $40,000 tax-free. Like registered retirement savings plans (RRSP), contributions to an FHSA would be tax deductible. Like tax-free savings accounts (TFSA), income and gains inside an FHSA as well as withdrawals would be tax-free.
Who is Eligible to open FHSA?
To open an FHSA, you must meet the following criteria:
- be an individual resident of Canada
- be 18 years or older
- be a first-time home buyer, which means you, or your spouse or common-law partner (“spouse”) did not own a qualifying home that you lived in as a principal place of residence at any time in the year the account is opened or the preceding four calendar years
How much can you contribute?
- Annual Limit: Contribute up to $8,000 per year.
- Lifetime Limit: The maximum lifetime contribution is $40,000.
- Unused Room: Carry forward up to $8,000 of unused contribution room annually, allowing flexibility in your savings strategy.
- Contribution Deadline: The deadline for contributions is December 31 of the tax year. Deduct contributions on your tax return for the year made or choose to benefit from the deduction in a future year.
How can you open an FHSA?
You can open one or more than one FHSA through an FHSA issuer, such as a bank, credit union, or a trust or insurance company.
To open an FHSA, you must do the following:
- Contact your issuer
- Provide the issuer with the information they need to register your FHSA, including:
- your social insurance number
- your date of birth
- any supporting documents your issuer may need to certify that you are a qualifying individual
Final Thoughts
If you are a first-time home buyer, an FHSA is a great way to help you save for a down payment and reach your goal of home ownership. However, careful planning is required as it comes with specific timelines that can impact your savings strategy.
If you or someone close to you is thinking of buying their first home, we can help. Schedule a consultation with DM Tax today.