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The First Home Savings Account

The First Home Savings Account (“FHSA”) will become available to Canadian residents this year and includes major tax savings opportunity for first time home buyers! Read on to learn more.

The purpose of the FHSA is to provide potential first-time home buyers with a tax-free option to save up for their down payment.

Key Features Include:

  • Max contribution $8,000 per calendar year
    • you may carryforward up to $8,000 in contribution room to a later year
  • Max lifetime contribution is $40,000
    • you can hold more than one FHSA account but the cumulative balance of all accounts cannot exceed the lifetime max contribution
  • Contributions are tax deductible
    • similar to a Registered Retirement Savings Plan (“RRSP”), contributions are deduction on your personal tax return in the year they’re made
  • Withdrawals used to purchase a home are non-taxable
    • similar to a Tax-Free Savings Account (“TFSA”) you taxed personally when you withdrawal the funds to purchase your first home

Who is Eligible:

To setup an account the issuer of the FHSA must first apply to CRA for approval.  The ‘issuer’ will be most major financial institutions or insurance companies.  Inquire with your local trusted financial institution.

To apply you:

  • Must be at least 18 years of age,
  • A resident of Canada, and
  • You or your current spouse/common-law partner have not previously purchased a personal residence.
    • If you purchased a home and rented it out (didn’t live in it) you may still qualify for an FHSA. Speak with your trusted financial institution.

FHSA’s are expected to become available on April 1, 2023!

Over Contributions:

Consistent with other registered saving accounts (RRSP and TFSA) if you over contribute to the FHSA account, the CRA applies a 1% tax rate to the highest amount of the excess each month.  To avoid this ensure you are tracking your contributions on an annual basis. If you do over contribute you can either pay the penalty and leave the over contribution in the account to be absorbed by the next calendar year contribution room, elect for a tax-free withdrawal with the issuer, or you can do a regular taxable withdrawal.

Withdrawals:

A qualified withdrawal for the purchase of a home that meets the purchase criteria under a FHSA is not taxable.  Before you withdrawal, discuss the plan with your FHSA issuer. Funds remaining, if any, after the home purchase can be transferred into an RRSP or RRIF.  Currently transfers do not impact the available contribution room of these accounts, but the CRA may change this rule in the future so discuss with your FHSA issuer before proceeding.  The transfer must occur by the end of the following calendar year from when the home purchase withdrawal occurred.

What if the FHSA is Not Used:

If you do not use the funds in your FHSA for purchasing a qualified home before you turn 71 years old or the end of the 15th year of the plan opening, then your FHSA will cease to be an FHSA and you must close the plan.  As noted above, you can transfer the balance to an RRSP or RRIF within the designated time to avoid it becoming a taxable withdrawal.

Overall, this new savings account is the best of both an RRSP and a TFSA and is an important new tool for home buyers looking to get into the housing market.

This article is not inclusive of all the rules.  Ensure you review the requirements on the CRA website – CRA – Tax-Free First Home Savings Account

Give Achieve CPAs LLP a call 604-433-7050 to avoid making any mistakes.

Written by Kate Norris, CPA, CA | Partner at Achieve CPAs LLP

Published March 15, 2023.
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