It has been quite sometime since we have seen a new tax savings account, but effective April 1st, 2023 we now have the new FIRST-TIME HOMEBUYER SAVINGS ACCOUNT (FHSA). Unfortunately, none of the big banks are ready, nor are they ready to commit to date when they will be. Instead stating it will be available this spring to sometime in the 2023 tax year.
What is the FHSA?
In a nutshell it is an account that is meant to help first-time home buyers purchase their first home by providing a tax deduction on contributions, like an RRSP and the HBP, but provides tax-free withdrawals when purchasing a first home, like a TFSA. Finally unlike the HBP, it does have an annual contribution limit but it does not need to be repaid.
Who Qualifies?
- Must be a citizen or resident of Canada.
- Must be over the age of 18.
- You must be a first-time home-buyer when you make a withdrawal or within 30 days of moving into a qualifying home. Being a first-time homeowner means you must not have lived in a home you or your spouse or common-law partner own for the period beginning in the four previous calendar years prior to the withdrawal. *
- Must not have lived in a home they owned in the year the account is opened.
- Must not have lived in a home they owned during the preceding four calendar years (owning a rental property that is not a principal residence seems to be ok, as long as it’s not lived in.)
- Must not have used the FHSA in the past (you cannot use the FHSA, sell your home, wait four years, and then repeat.)
What You Should Know
- Eligible first-time home buyers are able to start saving for up to 15 years with a maximum annual contribution of $8000, up to a lifetime contribution limit of $40,000.
- Withdrawals for a first-time home purchase are tax free HOWEVER any withdrawals from the FHSA that are not used for a first-time home purchase are considered taxable income.
- You and your spouse can each open your own individual FHSA, so long as you’re both first-time homebuyers.
- Must close the account within 15-years. Making the timing of when it is opened very important. To take full advantage you would need to plan 5 years ahead because of the $8000k per year contribution limit.
- It’s also important to note that you must close your account by the end of the year following the year your first qualifying withdrawal is made. This means that you’ll have to make all your withdrawals within that time period.
- An individual would be allowed to carry forward unused portions of their annual contribution limit up to a maximum of $8,000 to a subsequent year. (Carry-forward amounts would only start accumulating after an individual opens an FHSA for the first time.) (the maximum contribution, including catch-up, is $16,000 in one year.)
- An individual would be permitted to hold more than one FHSA, but the total amount that an individual contributes to all of their FHSAs could not exceed their annual and lifetime contribution limits.
- Contributions made to an FHSA following a qualifying withdrawal being made (i.e., when buying a first home) would not be deductible from net income.
- Transfers can be made from an RRSP to a FHSA but are subject to the annual contribution limit of $8,000. This is not ideal as the RSP contribution does not increase by the amount of the transfer out.
- Transfers can be made from the FHSA to an RRSP if not purchasing a home and will not affect RRSP contribution room.
- FHSA can be combined with the HBP of $35,000, providing as much as $75,000 for a first home purchase. The HBP portion will still have to be repaid.
- A parent should never contribute directly to an adult child’s FHSA. Instead they could gift their children money for other living expenses freeing up that amount of their children’s saving to contribute to their own FHSA.
Helpful Links For More Information
GOVERNMENT OF CANADA
BMO
FHSAs will be available around mid-2023, so please stay tuned.
https://www.bmo.com/main/personal/investments/learning-centre/what-is-first-home-savings-account/
NATIONAL BANK
Is expected to be available in spring 2023.
https://www.nbc.ca/personal/savings-investments/fhsa.html
CIBC
It will be available later this year.
https://www.cibc.com/content/dam/personal_banking/advice_centre/tax-savings/fhsa-overview-en.pdf
SCOTIABANK
It will be available in the 2023 tax year.
ROYAL BANK OF CANADA
Expects to launch FHSA this spring.
https://www.rbcroyalbank.com/investments/fhsa.html
TD
It will launch it later in 2023.