The new Tax-Free First Home Savings Account (FHSA) is finally here! Fidelity Investments is one of the first firms to make this account available to investors. Fidelity has provided advisors and investors with the following information in regards to FHSA accounts. This account is intended to give more Canadians the opportunity to purchase their first home, it has combined tax benefits of both the RRSP and TFSA and can hold both cash savings as well as investments.
Contributions to a FHSA are tax deductible, any investment income earned within the plan will not be subject to tax, and withdrawals to buy a qualifying first home will be tax free.
You must be a Canadian resident and at least 18 years old to open a FHSA. In addition, individuals can only participate in the plan once in their lifetime. As with The Home Buyers Plan (HBP) you cannot have lived in a home that you own, in the year in which you open the account or the previous four calendar years. Once a qualifying redemption is made, the account must be closed within one year.
The annual contribution limit is $8000, to a lifetime maximum of $40,000. Unlike an RRSP or TFSA, if you do not contribute the maximum amount each year, the unused contribution room does not carry forward.
Withdrawals from the Tax-Free First Home Savings Account (FHSA) and the Home Buyers Plan (HBP) can be made for the same qualifying home purchase.
Comparing FHSA to HBP
Withdrawals from the HBP are borrowed from your RRSP (interest-free) but they must be paid back within 15 years, whereas qualifying FHSA withdrawals are tax-free and do not need to be repaid.
If you do not buy a home within the 15-year FHSA limit, the funds can be transferred into your RRSP tax free before the end of the 15th year, where they can later be withdrawn under the HBP. A transfer of funds from an FHSA to an RRSP will not reduce your available RRSP contribution room, you can effectively create more RRSP room by starting to contribute to your FHSA.
Spousal Treatment
As with an RRSP, the only person permitted to claim deductions for the contributions to a FHSA is the account holder.
Individuals cannot contribute to their spouse’s FHSA and claim a deduction, but you are allowed to give funds to your spouse to claim a deduction on their own FHSA contribution. Similarly, you can give funds to an eligible child for them to contribute to their own FHSA but you cannot claim the deduction yourself.
If you give funds to your spouse or eligible child for their own FHSA, all income earned, and capital gains realized on those funds will not be attributed back to you.
If you’re interested in opening your own Tax-Free First Home Savings Account, please don’t hesitate to contact us.
Have a great weekend!
Tracey and Paige
Source: https://www.fidelity.ca/en/investor/fhsa/
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