Is the new First Home Savings Account (FHSA) right for you? Today we will break down the five things you need to know about this investment option.
What is an FHSA?
The First Home Savings Account (FHSA) is a registered plan, intended to support prospective first-time home buyers with saving for buying a home. You can open an FHSA if you are:
- At least 18 years old
- Not more than 71 years old on December 31st of the year you open the account
- A resident of Canada
- A first-time home buyer*
Similar to Tax Free Savings Accounts (TFSA), FHSAs can hold a range of qualified investments such as mutual funds, bonds, and GICs (guaranteed investment certificates). Learn more here.
What can be contributed?
In the first year you open the account (as of 2023), you can contribute $8,000 annually, up to a maximum contribution of $40,000. The account needs to be closed either the year a withdrawal is made to purchase a home, 15 years after it’s opened, or December 31st of the year the holder turns 71.
Once you’ve opened an account, unused contribution room will carry forward into subsequent years. There are no spousal benefits for this account – only the FHSA account holder can claim the deduction on their tax return.
How do withdrawals work?
A qualifying withdrawal is for the purpose of buying or building a home. Withdrawing for this purpose is tax-free.
If you decide not to buy a house, or reach the time or age limit on your account, it generally becomes fully taxable income in the year the withdrawal is made. However, you could also choose at that point to transfer the funds penalty-free from your FHSA to a Registered Retirement Savings Plan (RRSP) without impacting your RRSP contribution room.
What is the difference between an FHSA and a Home Buyer’s Plan?
An FHSA is a separate account – where the Home Buyer’s Plan is paid out of your RRSP account.
The benefit of the FHSA is that contributions are tax deductible, and qualified withdrawals are also tax-free (including investment growth), with no repayment required. In comparison, the HBP is tax deductible, but must be repaid within 15 years of withdrawal from your RRSP. RRSP contributions are also tax deferred, rather than tax-free.
Is the FHSA the right fit for me?
Whether you’re planning to buy a home this year, or you’re unsure if you’ll ever buy a home, the FHSA is a flexible investment option. If you don’t ever buy a house, you can transfer funds from the FHSA to your RRSP or RRIF (Registered Retirement Income Fund) tax-free, and it won’t impact your contribution limits. Just make sure to do the transfer before the maximum participation period ends; either the year a withdrawal is made to purchase a home, 15 years after it’s opened, or December 31st of the year the holder turns 71.
If you’re planning to buy a home this year, you can still contribute to your FHSA. By doing this, you benefit from lowering your taxable income, and can withdraw right away with no penalties.
Interested in opening an FHSA?
ACN Financial Group is now offering FHSAs as an investment option. We would love to discuss if this investment is the right fit for you. Contact us today!
*According to the CRA: “For the purpose of opening an FHSA, you will be considered to be a first-time home buyer if you did not, at any time in the current calendar year before the account is opened or at any time in the preceding four calendar years, live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that either.”
