Tax-Deductible Contributions
Like an RRSP, contributions you make to your FHSA are generally tax-deductible, reducing your taxable income for the year you contribute.
FHSA (First Home Savings Account): Your Path to Homeownership
Save for Your First Home, Tax-Free, with Government Support
What is a First Home Savings Account (FHSA)?
The First Home Savings Account (FHSA) is a registered plan designed to help prospective first-time homebuyers save for a down payment tax-free. It combines some of the best features of an RRSP (tax-deductible contributions) and a TFSA (tax-free growth and withdrawals for a qualifying home purchase).
Who is Eligible to Open an FHSA?
To open an FHSA, an individual must:
- Be a resident of Canada.
- Be at least 18 years of age (and not older than 71).
- Be a first-time homebuyer. This means you or your spouse/common-law partner did not own a home that you lived in as your principal residence in the calendar year the account is opened or in the preceding four calendar years.
Key Benefits & Features of an FHSA:
Tax-Free Growth & Qualifying Withdrawals
Investments within the FHSA grow tax-free. Qualifying withdrawals to purchase a first home are also non-taxable, like a TFSA.
Annual Contribution Limit
You can contribute up to $8,000 per year. Unused annual contribution room (up to a maximum of $8,000) can be carried forward to the following year.
Lifetime Contribution Limit
There's a lifetime FHSA contribution limit of $40,000 per individual.
Investment Choices
You can hold qualified investments like Segregated Funds and GICs within an FHSA through insurance companies.
Flexibility if Not Used for a Home
If you don't purchase a qualifying home, funds can be transferred tax-free to an RRSP or RRIF (subject to your available RRSP room), or withdrawn on a taxable basis. The FHSA must be closed by the end of the 15th year after it was opened, or by the end of the year you turn 71.
How FHSAs Work - A Quick Overview:
- Open an Account: Ensure you meet eligibility criteria.
- Contribute: Deposit up to $8,000 annually (plus any carry-forward room from the previous year), up to a $40,000 lifetime limit. Contributions are tax-deductible.
- Invest: Choose investments within your FHSA to grow your savings tax-free.
- Qualifying Withdrawal: When ready to buy your first qualifying home, make a tax-free withdrawal. You must have a written agreement to buy or build a qualifying home before October 1 of the year following the withdrawal and intend to occupy it as your principal residence within one year.
- Non-Qualifying Withdrawals/Transfers: If not used for a home, funds can be transferred to an RRSP/RRIF or withdrawn (taxable).
It's important to understand the rules for qualifying withdrawals, carry-forward amounts, and what happens if an FHSA is not used to purchase a home. We can help clarify these details.
FHSA vs. RRSP Home Buyers' Plan (HBP) vs. TFSA for a Down Payment:
The FHSA offers distinct advantages. Here's a brief comparison:
| Feature | FHSA | RRSP HBP | TFSA (for Home) |
|---|---|---|---|
| Contribution Tax-Deductible? | Yes | Yes | No |
| Growth Tax-Free/Deferred? | Tax-Free | Tax-Deferred | Tax-Free |
| Withdrawal for Home Tax-Free? | Yes (Qualifying) | Yes (but must be repaid to RRSP) | Yes |
| Repayment Required? | No | Yes (over 15 years) | No |
| Max Withdrawal for Home | Account Balance (up to $40k contributions + growth) | $35,000 per individual (current limit - verify with CRA) | Account Balance |
An FHSA can often be used in conjunction with the RRSP Home Buyers' Plan and a TFSA for even greater down payment power.
Partner with Us for Your FHSA
As a licensed life insurance agent, we can help you open your First Home Savings Account and invest in insurance-based products such as Segregated Funds and GICs. We partner with leading Canadian financial institutions like Industrial Alliance (IA) and Manulife, who offer compliant FHSA plans and suitable investment options.
Start Your Journey to Homeownership with an FHSA
The FHSA is a powerful new tool for aspiring first-time homebuyers. Let us help you understand how it can fit into your financial plan.
Open or Discuss Your FHSACall us at 647-709-3400 or email info@oneprotection.ca.