There will be a new First Time Home Buyer Savings Account (FHSA) available in Canada this year, a great opportunity for current renters and young adults that have never owned a home to start contributing and saving tax free for their down payment. This could be a great opportunity to work with your financial advisor partners to find new home buyers, or help parents find additional money to contribute for their children.
The First Home Savings Account (FHSA) is coming as early as April 1, 2023 in Canada, giving first time home buyers the benefit of an RRSP and TFSA combined to help save for their first home.
Here are some of the benefits:
- Contributions are tax deductible
- Withdrawal to purchase a home is non-taxable
- Growth is tax free
- Max. $40,000 contribution room
- Max. $8000 contribution per year, beginning 2023, including carry forward amount (excess charged 1% penalty each month)
- Ex. $5000 contributed in 2023, max. allowed in 2024 would be $11,000 ($8000 plus $3000 carry forward)
- Like the TFSA, carry forwards only accumulate once the FHSA is opened.
- Must be min. 18 years old, max. 71 years old and Canadian resident
- Must not have owned a home in which they lived at during any part of the calendar year or any time in the previous 4 years.
- Can make the withdrawal within 30 days of moving in
- Can not use funds with a partner that is not a first time home buyer
- 15 years to grow and use funds for buying a first home
- Can hold multiple FHSA, total cannot exceed $40,000.
What Happens if you don’t use your FHSA?
- Withdraw your funds and pay tax at your applicable tax rate, or transfer to your RRSP or RRIF tax free and pay tax on withdrawal at retirement income tax rate
- Transferred funds do not reinstated the contribution room of the FHSA
- Transferred funds into an RRSP do not reduce contribution room, nor are they limited by their available contribution room.
Can you carry forward Undeducted Contributions?
- Yes, like an RRSP, you can carry forward indefinitely and deduct contributions in later tax years.
