Ultimate Guide to Canada's Tax-Free First Home Savings Account(FHSA)
This is the ultimate guide to Canada's new First Home Savings Account (FHSA)!
Benefits
Save you Money
We tell you all about the costs and fees associated with an FHSA that you need to know about to save money!
Save you Time
We have all the information about the FHSA in one place so you can educate yourself quickly!
Maximize your FHSA
We give you information and tips on how to maximize the growth of your FHSA!
Background
Example provided in Budget 2022
Matthew and Taryn are aspiring homeowners living together. Starting in 2023, they each save $8,000 per year (the annual maximum) in their Tax-Free First Home Savings Account and are able to deduct this from their income. They both make between $50,000 and $100,000, and the Tax-Free First Home Savings Account allows them each to receive an annual federal tax refund of $1,640.
Matthew and Taryn have a combined $90,000 (including tax-free investment income) in their Tax-Free First Home Savings Account at the end of 2027, when they finally find their ideal first home.
By using the Tax-Free First Home Savings Account, Matthew and Taryn are finally able to afford a down payment to buy their first home. They can withdraw their down payment tax-free, saving thousands of dollars that can be put towards their new home. In addition, they will claim the doubled First- Time Home Buyers’ Tax Credit, providing an additional $1,500 in tax relief.
Analysis of Budget 2022 Announcement
There was no mention of only people under 40 contributing to this account! The government probably removed this because of age discrimination. It would then need to be determined at what time would you have to convert your FHSA to your RRSP if you don't purchase your first home.
There weren't too many details given, but in their examples they use $8,000 as the annual maximum contribution limit.
Content
Eligibility
There are some Eligibility Requirements to open a FHSA.
Generally, you must be:
- between 18 and 71
- a resident of Canada
- a First Time Home Buyer
- buying or building a Qualified Home
There is much more detail to these requirements that you can read about on our Eligibility page.
EligibilityContributions
You can contribute up to $40,000 lifetime into a FHSA with a maximum of $8,000 per year.
You can contribute up to $8,000 in the year that you open your FHSA.
There are more rules for contributing to your FHSA that we discuss in our Contributions page.
ContributionsInvestments
The allowed investments in an FHSA are similar to what is allowed in TFSAs and RRSPs. These include savings accounts, GICs, stocks, and bonds.
InvestmentsWithdrawals
You will be able to withdraw your money from your FHSA at any time for the sole purpose of making a down payment on a first home.
You will NOT pay any taxes on the money that you withdraw.???to be confirmed???
You will NOT need to repay the money that you withdraw from your FHSA. This is unlike the RRSP's Home Buyer Plan which allows you to withdraw $35,000 from your RRSP, but you must repay the withdrawn amount within so many years.
There will likely be tax consequences if you withdraw money from the FHSA for anything other than a down payment on a first home.
WithdrawalsIssuers
It is anticipated that all the banks (and their associated investment firms), insurance companies, credit unions, and investment firms will provide FHSAs to their customers at some point in the future.
As of Summer 2023, very few have started offering their customers FHSAs. We have compiled a list of those who have started offering this to their customers.
IssuersCriticisms about FHSA
There are a number of criticisms of the FHSA
It appears that it will help high income earners more because they will get a larger tax deduction when contributing and would be more likely to contribute to a FHSA.
Not a lot of people will use it because most people already don't take advantage of using the RRSP's Home Buyers $35,000 withdrawl option and don't maximize the contribution to their TFSAs.
It may not help a lot of people because you still need to make enough money for it to be worthwhile to contribute and get a tax break.
The $40,000 contribution limit and any investment gains that you make aren't a large amount when compared to the cost of a new home. It may only be about 5%.
Tips
If you plan to buy a house in the very short term, contribute the $8,000 to get the income tax deduction then withdraw the money. This will save you money immediately.
FAQs
These are the general FAQs about the FHSA.
What is "FHSA" an acronym for?
FHSA stands for the FirstHome Savings Account.
What is a FHSA?
The First Home Savings Account (FHSA) is a account recognized by the Canadian Goverment which allows a person to save tax-free for a down payment to purchase a qualifying home.
How will the Tax-Free FHSA work?
The Tax-Free FHSA will work a little bit like a TFSA and a little bit like a RRSP.
It will work like a RRSP because the money that you contribute into a FHSA will be tax-deductible and the money in the FHSA will grow tax-free.
It will work like a TFSA because the money that you withdraw for a down payment on a qualifying home will be not be taxed???to be confirmed????
You will be able to invest in investments similar to the investments you can do in TFSAs/RRSPs. The idea is that you make profits on your investments so your money in your FHSA will grow tax-free. There is a risk that you will actually lose money depending on your investment choices.
Then, when you buy your first home, you can withdraw the money in your FHSA to use as a down-payment.
So, the FHSA is basically tax-free in and tax-free out.
When will the FHSA be available?
The Canadian goverment allowed issuers to offer FHSAs to their customers as of April 2023.
However, as of Summer 2023, only a few issuers currently offer FHSAs to their customers.
Why did the Canadian Government create the FHSA?
Who is the FHSA for?
Where can you use the FHSA?
What happens if I overcontribute to my FHSA?
The answer to this question has not been determined at this time.
Do I need to repay the money I withdraw from my FHSA account?
No, there will be no requirement to repay withdrawals from a FHSA account used to buy a first home.
It has not been determined yet what will occur if you withdraw funds not for a first home purchase. Likely you will be taxed on the amount withdrawn.
What is the best FHSA?
We can't answer this question now because no financial institution has created a FHSA account yet.
What investments are eligible for a FHSA?
We can't answer this question yet, because the government hasn't said anything about what investments would be eligible.
Will there be fees for setting up a FHSA?
We don't know yet, but if the TFSAs are any indication, there will be financial institutions that will allow you to open a FHSA account for free, but will collect fees on the investment transactions (e.g. to buy/sell stocks) that you make in the account.
Disclaimer
Disclaimer: The information on this website is for informational purposes only. Please get professional advice before doing any transactions.