(Tax-free first home savings account)

It has been operational since April 2023 in certain financial institutions. Several of them have been quicker than others to allow you to open your account. For most of them, their investment vehicle offerings are partial.

General Definition:

The Tax-Free Savings Account for the Purchase of a First Property (FHSA) is designed for future buyers of a first home.

This account combines the advantages of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (FHSA).

It allows you to accumulate the necessary down payment for a home acquisition more quickly.

Advantages of FHSA

A deduction is made in your tax return.
Your savings grow tax-free.
Withdrawals for the purchase of a first home are not taxable.

Eligibility conditions to open a FHSA: You must be a resident of Canada:

You must have reached the age of majority, which is 18 or 19 depending on the province*, and be under 71 years old.
You must not have occupied, as your principal residence, a home owned by you, your spouse, or common-law partner during the part of the previous calendar year before opening the account, nor during the preceding four calendar years.

You must not have previously used the FHSA for the purchase of a property?

What are the conditions? You can contribute up to $8,000 per year, with a lifetime limit of $40,000.
A lifespan of 15 years.
The FHSAP has a maximum lifespan of 15 years. After this period, the funds must be transferred to an RRSP or a Locked-in Retirement Account (LIRA).

FHSA vs. Home Buyers' Plan (HBP): What are the differences?

What is the difference between the FHSA and the HBP? And which one should you choose? The decision depends on your savings goals, financial situation, and tax circumstances. Not all financial institutions currently offer the FHSA. For those that do, it is necessary to check with each institution as many have restrictions regarding the types of investments.

Withdrawal from FHSA

If you withdraw money from your FHSA to purchase your first home, you will not pay taxes on your withdrawals. However, if you use the money from your FHSA for purposes other than the purchase of a first home, the CRA will recognize the amount of your withdrawal as income and tax it accordingly.

Conclusion

The FHSA is a beneficial option for Canadians looking to purchase their first home. You can use the FHSA to save for your down payment. With the FHSA, you enjoy the tax advantages offered by both the TFSA and the RRSP in a single account.

You can claim tax deductions for your contributions, and your withdrawals for home purchase are tax-free. The FHSA does not replace the existing Home Buyers' Plan (HBP). Instead, it offers Canadians another tax-advantaged savings opportunity.

If you have any questions, feel free to contact me.

Sources: Desjardins, National Bank AI, and Les Affaires.

FHSA