First Home Savings Account (FHSA)
Young Canadians aspire to own a home like their predecessors, but the soaring rent and cost of living have made it strenuous to afford a down payment. A new proposal to introduce a tax-free First Home Savings Account will enable individuals to save up to $40,000 towards their first home, without any repayment obligation, and withdraw it tax-free towards their first home purchase.
This plan combines the benefits of both an RRSP and a TFSA, allowing young Canadians to save 100% of every dollar they earn up to $40,000, and expedite their down payment process.
An FHSA is a tax-free registered plan that enables prospective first-time home buyers to save for their first home up to certain limits. Starting from April 1, 2023, individuals will have the option to open an FHSA.
You are a qualifying individual if you meet all of the following requirements at the time the account is opened:
18 years of age or older
a resident of Canada
You can carry forward your unused FHSA participation room at the end of the year, up to a maximum of $8,000, to use in the following year. The most a buyer can save is $40,000 in this type of account.
You cannot participate directly in your spouse’s or common-law partner’s FHSA. Your spouse or partner can is the only one that can contribute to their account.
Unlike RRSPs, contributions to your FHSAs during the first 60 days of the year are not deductible on your previous year’s income tax and benefit return. You also cannot claim a tax deduction for any FHSA contributions you make after your first qualifying withdrawal.
As alwasy, I recommend chatting with your tax professional to ensure this type of savings is right for you.
