What is the First Home Savings Account?
If you're a first-time buyer (or know somebody who is), you may be interested in knowing more about Canada's brand new Tax-Free First Home Savings Account, of FHSA for short.
The FHSA will let you save up to $8,000 tax-free annually - up to a $40,000 lifetime limit - as long as the funds are used for the purchase of a first home within 15 years of opening your account.
It will function like a RSP with contributions being tax-deductible. Withdrawals to purchase a first home however would be non-taxable, like a Tax-Free Savings Account. Below you'll find some of the key details about the program, including eligibility requirements and some of its limitations.
When can I open an FHSA?
The new program officially took effect on April 1, 2023, but media reports suggest many of the country's big banks aren't yet equipped to offer the FHSA, but hope to have it available by later this spring or this summer. In statements provided to media, the banks said the implementation of such an account is complex, particularly given its tax implications, and that several are still awaiting tax reporting guidelines from the Canada Revenue Agency.
Who is eligible to open an FHSA?
It will be available to anyone who is a Canadian resident, at least 18 years of age, and a first-time homebuyer. To qualify as a first-time buyer, you or your spouse cannot have owned a qualifying home that was used as a principal residence at any time during the year the account is opened or in the four preceding years.
What investments can be held in the FHSA?
Rules governing investment options within the FHSA are identical to those that apply to TFSAs. Funds in the account can be invested in mutual funds, publicly traded securities, government and corporate bonds and guaranteed investment certificates (GICs). Investments prohibited within the FHSA include non-arm's length investments and investments in assets such as land, shares of private corporations, etc.
How are funds withdrawn from the FHSA?
Funds withdrawn from the account will only be tax-free if they are being used for a qualifying first home purchase. Withdrawals for qualifying purchases can be made in a single lump sum or in a series of withdrawals.
If you want to know if the Tax-Free First Home Savings makes sense for you, don't hesitate to contact me and I'll be happy to review the program with you in more detail.
There are comprehensive qualification guidelines that cover the process in more detail. Those and more are available directly on the Department of Finance website here.