On April 1st the federal government launched a new savings option for buyers looking to purchase their first home. Called the First Home Savings Account (FHSA), this unique savings product will come with several benefits for those stashing away funds for a future down payment.
Benefits
One of the main features of the FHSA is that it allows Canadians to save towards their first home without having to pay tax on the interest or investment returns produced in the account. This means that contributors can maximize the growth potential of their savings without having to worry about tax implications.
Another benefit is that individuals making a deposit to their FHSA may claim an income tax deduction for the contribution made that calendar year. As with Registered Retirement Savings Plans, this may produce an unexpected tax refund. Contributions made within the first 60 days of a given calendar year cannot, however, be attributed to the prior tax year like with an RRSP.
Rules & Eligibility
The lifetime limit on FHSA contributions is set at $40,000, with an annual contribution limit of $8,000. Unused contributions can be carried forward to subsequent years, but the account must be used to purchase a home within 15 years of inception, or by the year the account holder turns 71. Otherwise, the FHSA must be rolled into another registered savings vehicle (e.g. an RRSP).
To be eligible for the FHSA, an individual must be a Canadian resident and a first-time homebuyer. They must also be at least 18 years old and have a valid social insurance number.
Withdrawals
A withdrawal from an FHSA to purchase a home is not taxable, but the withdrawal must meet these basic conditions to qualify:
- The individual must be a first-time home buyer.
- There must be a written agreement to buy a home before October 1 of the year following the year of withdrawal.
- The individual must intend to occupy the home as their principal residence within one year of buying it.
- The property purchased must be in Canada.
A withdrawal from an FHSA to purchase a home is not taxable, but the withdrawal must meet these basic conditions to qualify:
Pro Tip
If you’re a parent or grandparent considering gifting money to your child or grandchild for the purchase of their first home, contributing to an FHSP on their behalf could be an excellent choice as it would provide the added benefit of an income tax deduction for your family member. Furthermore, attribution rules DO NOT apply to FHSAs, so all income and capital gains earned would not create any tax liability for the gift giver.
Summary
The First Home Savings Account is a fantastic option for new buyers who want to maximize the down-payment for their very first home. With flexible contributions, valuable tax deductions and tax-free growth, the FHSA is an efficient saving tool for Canadians who are planning that big step onto home ownership.
If you have any questions about the First Home Savings Account, please reach out with a call or email. We’d be very happy to hear from you.