What is the new Tax-Free First Home Savings Account (FHSA) for Canadians?

The Canadian government recently introduced the First-Time Homebuyer Savings Account (FHSA) as a new savings option for first-time homebuyers set to release sometime in 2023.

This account is designed to help Canadians save money for their first home purchase.

Why should you care?

Benefits/Perks:

• FHSA contributions tax-deductible (like an RRSP)

• Investment gains are tax free.

• FHSA withdrawals to purchase a first home would be non-taxable (like a TFSA).

• Can be used with a HBP (although I personally wouldn’t recommend using a HBP for most people).

This is essentially give you the best of both worlds and you get to triple dip the tax savings which is unheard of.

Limitations/Cons:

• There are annual contribution limits similar to the TFSA, although it is higher, starting at $8,000/year, and $16,000/year for couples.

• A lifetime maximum currently set at $40,000 ($80,000 lifetime max for couples).

• An FHSA will only stay open for 15 years after it was opened or until an individual turns 71, whichever occurs first (it is then either added to income, or transferred into a RRSP or RRIF).

• Can only be withdrawn tax-free if it is used for a qualifying housing unit located in Canada.

• May slightly increase home prices because it helps saving for a down payment.

In order to open an FHSA, first-time homebuyers must be at least 18 years of age and have a valid Social Insurance Number. They must also have a Canadian address and be a first-time homebuyer. Which is defined as someone who “hasn’t owned a home in which they lived at any time during the part of the calendar year before the withdrawal is made or at any time in the preceding four calendar years. There is an exception to allow individuals to make qualifying withdrawals within 30 days of moving into their home.”

Overall, the FHSA is a great new savings option for Canadian first-time homebuyers. With its tax-free status and contribution matching program, it provides a valuable tool for saving for their first home purchase. For more information on the FHSA, be sure to speak with a financial planner.

For more info you can check the official Government of Canada website using the link Here .