What is First Home Savings Account (FHSA)?

How Does It Work?

The FHSA combines the best benefits of both the RRSP and the TFSA to help you save for a down payment for your home. To start, contributions to the FHSA are tax deductible when you file your taxes. This is similar to an RRSP where contributions can be used to lower your net income and therefore lower the tax you pay when you file your taxes.

When it comes to withdrawing money, any qualifying withdrawals from the FHSA (including investment returns) are tax-free, much like a TFSA. Note that to be considered qualifying, the withdrawal must be used for a first home purchase under the rules laid out by the Government of Canada.

Who is Qualified for this type of Account?

To qualify for the FHSA, the following need to be true

• Be between the ages of 18 and 71
• Be a current tax resident of Canada
• Have not lived in a home that you or your partner owned in the current calendar year
  for any of the previous 4 calendar years
• Be opening the account to save for buying a qualifying home in Canada
  Contributions and Deductions
• Annual contribution limit of $8,000 (unused contributions can carry forward, with a
  maximum carry forward of $8,000)
• Lifetime contribution limit of $40,000
• If you have a spouse or common-law partner, you can each use your FHSA when you’re
  ready to purchase a first home
• You can also carry forward any unused contribution in the subsequent year up to a
  maximum of $8,000 per year on top of the contribution limit of $8,000
• Carry-forward amounts begin to accumulate only after you open your FHSA. This may be an option if you’re planning to purchase a home in the future but not looking to contribute to the account immediately.

Does the FHSA account have an expiry date?

•  Yes, your First Home Savings Account expires exactly 15 years after the day it is opened, or when the individual turns 71 (whichever comes first).
• If your FHSA expires before you buy a home, the funds can be transferred into your RRSP.
• At age 71 – a notice will be issued before the account needs to be closed, at which point it can be transferred to an RRSP or RRIF with no penalties or withdrawn as taxable income and subjected to withholding tax.

Withdrawals from an FHSA

For you to qualify for a withdrawal from your FHSA, the following must be true

• You must be a first-time homebuyer at the time you make the withdrawal. This means that you cannot have owned a home where you lived in any part of the calendar year before the withdrawals up to 30 days after moving into your new home.
• The CRA may request of you a written agreement that you’re purchasing a property before October 1 of the year following your withdrawal
• You intended to live in the qualifying home (a housing unit located in Canada) as your principal residence for one year after purchasing or building it.
• After making sure all the previous are true, only then FHSA withdrawal is possible.

Claiming Deductions

When you contribute to your First Home Savings Account, you don’t need to claim a deduction for that year. Similar to an RRSP contribution, you can carry forward any unused deductions indefinitely (throughout the account’s lifespan of 15 years) and use them in subsequent years. For example, if you make an $8,000 contribution to your FHSA in 2023, you can claim some or all of the deduction to your
taxes next year (2024) or in later years.

Over contribution

If you over-contribute, your over-contribution amount is subject to a 1% tax on the highest excess amount for each month it is over the limit. This will continue to apply each month until the excess amount is removed from your FHSA, which stops accruing when.
– You withdraw the excess amount from your FHSA
– You receive a new contribution room, which happens on January 1 of the following year.  You can deduct from your income any over-contributed amount in the year it is no longer considered an over-contribution, but not the year before that.

Resources + Banks

Government of Canada     TD Canada Trust     RBC     CIBC     National Bank

Consultation

To learn more about FHSA and how you can benefit, please speak with one of our advisors HERE