FHSA

Starting April 1st, 2023 a new government program known as the FHSA (First Home Savings Account) begins. This tax-free investment account is designed to help Canadians save towards to their first home. Investments grow tax-free in the plan and are available to Canadians over 18years of age and not turning 72 or older. You or your partner cannot have owned a qualifying home used as a principal residence at any part of the calendar year that the account is opened or the preceding 4 calendar years.

• There is an annual contribution limit of $8,000 per year

• There is a lifetime contribution limit of $40,000

• Individuals can carry forward up to $8,000 of their unused annual limit to use in a later year

• Carry forward provisions only go into effect after the FHSA is opened

• Annual contribution limits are based on the calendar year (January to December)

• FHSA contributions can be claimed as a deduction against taxable income and like RRSPs can be carried forward.

• Any overcontributions are subject to a 1% tax for each month or part month that the account exceeds its limit based on the highest amount it was over for that month.

• Income and investment gains are not included in your annual income while losses can not be deducted

• Any growth in your investments increases on a tax-free basis

• The FHSA can hold similar investments as RRSPs and TFSAs. ie Mutual Funds, ETFs, GICs 

• If you don't buy a house within 15 years of opening a FHSA account, the funds can be transferred to your RRSP tax-free

• If you do buy a house, any unused funds can be transferred tax-free to an RRSP or RRIF until December 31st of the year following the withdrawal.

• You can combine with the Home Buyers' Plan (HBP) to create a larger down payment but HBP will need to be repaid to your RRSP within 15 years.  A limit of $75,000 total  applies. FHSA - $40,000 and HBP $35,000

Qualifying withdrawals to purchase a home are tax-free. In order to qualify the following conditions must be met;

• You must be a Canadian resident from the time of withdrawal to the acquisition of a qualifying home and also be a first-time home buyer when you withdraw the funds.

• You need to be able to provide a written agreement for buying or building a qualifying home before October 1st of the year after you withdraw funds and plan to occupy the home as your principal residence within 1 year.

• The home must be located in Canada in order to qualify.

• If you do buy a house, any unused funds can be transferred tax-free to an RRSP or RRIF until December 31st of the year following the withdrawal. Transfers do not reduce your RRSP contribution room and once the transfer is completed the funds fall under the rules of the account that they were transferred to.

• Withdrawals or transfers do not create new contribution room in your FHSA

• Any non-qualifying withdrawals are considered income in the year and will be subject to withholding taxes

Note: The information provided is current as of the publishing date, but since this is a new program changes could still occur. We are always available for any questions that you may have. If we don’t have the answer we will research it for you and get the answers that you need. 

Sources:

https://www.fidelity.ca/en/investor/fhsa

https://www.cdic.ca/your-coverage/changes-to-cdic-deposit-protection

https://www.canada.ca/en/department-finance/news/2022/08/design-of-the-tax-free-first-home-savings-account.html

HOME BUYERS' PLAN (HBP)

•   As a first time home buyer, the Home Buyers' Plan allows you to withdraw up to $35,000 from your RRSP  without paying withholding tax or counting the proceeds as income. You start to re-pay the funds to your RRSP two years after the withdrawal and have 15 years to pay the full amount back into your RRSP.  Qualifying is subject to meeting the eligibility requirements requirements of the CRA.  The CRA will provide an annual update with the minimum payment required. Visit the link below for more information.

CLICK ON THE GOVERNMENT LINKS ABOVE FOR MORE DETAILS VIA THEIR WEBSITE