- at least 18 years old,
- a resident of Canada, and
- be a first-time home buyer—which generally means that they did not live in a home that they, or their spouse or common-law partner, owned at any time in the year the account is opened or in any of the preceding four calendar years.
Is the FHSA similar to a RRSP or TFSA?
- FHSA contributions are tax deductible and any contributions not deducted can be carried forward and deducted in a later tax year.
- The annual contribution limit is $8,000, and
- the lifetime contribution limit is $40,000.
The contributions to be deductible have to be made within the calendar year.
- Like a TFSA, withdrawals to purchase a qualifying home, including any income and gains earned within the account, are not taxable.
- Unlike TFSAs, the maximum unused contribution room that can be carried forward is $8,000 and when withdrawals are made, your contribution room is not restored.
Purchase of a first home
- Contributing to the FHSA is a very attractive option as a tax deduction is available on your contribution and a qualifying withdrawal to purchase a qualifying home is tax-free.
- Even if you do not end up buying a home, you have the option of transferring the funds to an RRSP with no immediate tax consequences—as long as it is a direct transfer—and this transfer will not reduce your unused RRSP deduction room.
- The Home Buyers’ Plan (HBP) is still an option allowing the individual to withdraw up to $35,000 from their RRSP to purchase a qualifying home with no immediate tax consequences. Keep in mind that amounts withdrawn under the HBP must be repaid to an RRSP over a period of 15 years.
- This means that you may have a total of $75,000 (plus accumulated investment income from an FHSA) of tax-free money that can be used toward the purchase of a new qualifying home, if you have contributed the maximum lifetime amount of $40,000 to your FHSA and that you have adequate funds in your RRSP.
- While a TFSA is not specifically geared towards savings for the purchase of a first home, it can also be used to save for this major purchase.
If you are a first-time home buyer, an FHSA is a great way to help save for a down payment and reach the goal of home ownership.
Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. As personal tax season approaches, Scott and his team understand personal taxes are as individual as clients themselves. BDO works closely with their clients to understand their specific needs and adjust strategies accordingly. BDO partners and staff take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.
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