First Home Savings Account & You
For those who long to buy their first home, there is some much-needed help coming in 2023. This new registered plan would give prospective first-time home buyers the ability to save up to $40,000 on a tax-free basis, contributing a maximum of $8,000 per year. Like a Registered Retirement Savings Plan (RRSP), contributions will be tax-deductible, and withdrawals to purchase a first home—including from investment income—would be non-taxable, like a Tax-Free Savings Account (TFSA).
To open an FHSA, an individual must be a resident of Canada and at least 18 years of age. In addition, an individual must be a first-time home buyer, defined as not having owned a home in which they lived at any time during the part of the calendar year before the account is opened or at any time in the preceding four calendar years.
An FHSA would not be permitted to continue operating or be opened after December 31 of the year in which the earliest of these events occurs:
- The fifteenth anniversary of the individual first opening an FHSA; or
- The individual turns 71 years old.
If you are not able to utilize all the $8,000 contribution room in a given year, the unused room can be carried forward to future years, again like the TFSA and RRSP. Upon withdrawal, any savings not used to purchase a qualifying home could be transferred on a tax-free basis into an RRSP or Registered Retirement Income Fund (RRIF) or would otherwise have to be withdrawn on a taxable basis. These transfers would not reduce, or be limited by, an individual’s available RRSP contribution room. Individuals that make a qualifying withdrawal could transfer any unwithdrawn savings on a tax-free basis to an RRSP or RRIF until December 31 of the year following their first qualifying withdrawal. A nice benefit!
Investment choices are very flexible, just like a TFSA or RRSP. It need not be a savings account. It can hold a combination of mutual funds, exchange-traded funds, stocks, bonds, or private investments that can provide better returns depending of course on the time horizon, risk tolerance, and objectives of the investor.
There are several other factors and planning opportunities that are associated with this new incentive.
Hopefully, the plan becomes a reality sooner than later as it certainly provides a much-needed boost to those eager to enter buy their first home. More information will be provided once the government finalizes the details for the FHSA before launch. In the meantime, please contact us for more information if you qualify and desire to build savings for a home purchase. It seems a win-win to me if you do.
Written By: Adam Prittie