Everything you need to know
The new Tax-Free First Home Savings Account (FHSA) is finally coming to fusion and should be available to the public by the end of April 2023. This account can hold both cash savings and investments; it is intended to give more Canadians the opportunity to purchase their first home. The account has combined tax benefits of both the RRSP and the TFSA. It’s the government’s intention to make it easier for Canadians to save for a downpayment.
Eligibility
If you are a Canadian resident, between 18-71 years old you are eligible to open a FHSA. Since this is a savings account for first time home buyers, you, your spouse or common law partner must not have owned a home within the last four years prior to opening this account.
Benefits
The FHSA is like an RRSP whereas any contributions will be tax deductible. In addition, similar to the TFSA, any withdrawals to purchase a home will not be subject to tax. Plan holders will be allowed to transfer funds from an RRSP to a FHSA on a tax-free basis, subject to the lifetime and annual contribution limit. If you don’t buy a home within 15 years of opening your FHSA, you must close the account. You can transfer the funds to your RRSP tax free and later purchase a home using the funds under a Home Buyers Plan (HBP).
As a homebuyer, you can also withdraw up to $35,000 from your RRSP but the difference is, you must repay it within 15 years.
Contributions
Like the RRSP and TFSA the new FHSA will have annual contribution limits. You are allowed to contribute $8,000 annually, with a $40,000 lifetime contribution limit. Any unused annual contributions can be carried forward, subject to the lifetime contribution limit.
Qualifications
According to Fidelity’s website under “The Tax-Free First Home Savings Account (FHSA)” page, to qualify, a withdrawal needs to meet these conditions:
- You must be a resident in Canada from the time of the withdrawal to the acquisition of the qualifying home and a first-time home buyer when you make the withdrawal. There is an exception to allow individuals to make qualifying withdrawals within 30 days of moving into a qualifying home.
- You must have a written agreement to buy or build a qualifying home before October 1 of the year following the year of withdrawal and intend to occupy the home as a principal place of residence within one year after buying or building it.
- The qualifying home must be a housing unit located in Canada.
If you’re interested in learning more about the FHSA please don’t hesitate to contact us.
Have a great long weekend!
Happy Easter!
Tracey and Paige
Article written by Paige Marshall.
Reviewed and approved by Tracey Marshall.
Source: https://www.fidelity.ca/en/investor/fhsa/
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