FHSA: A Tool for First-Time Homebuyers
In April 2022, the Canadian government introduced the tax-free first home savings account (FHSA) as a response to the country's hot housing market. The FHSA is a new registered account that aims to help first-time homebuyers achieve their homeownership goals.
But how exactly does this account work, and how can it be leveraged to its fullest extent? In this guide, I'll provide you with everything you need to know about the FHSA, including its benefits and features for first-time homebuyers.
The Canadian federal government introduced the Tax-Free First Home Savings Account (FHSA) plan, aimed at making homeownership more attainable for first-time buyers, especially young individuals. The plan, taking effect on April 3, 2023, allows prospective homeowners to save up to $40,000 tax-free in a dedicated account to be used for a down payment on their first home. The FHSA combines elements of Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) while complementing other government programs like the Home Buyers' Plan (HBP) and the First-Time Home Buyer Incentive (FTHBI)
What is a First Home Savings Account (FHSA)?
The FHSA is a unique savings account that incorporates elements of both the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Similar to an RRSP, contributions made to an FHSA are tax-deductible, and qualified withdrawals to purchase a first home are non-taxable, just like a TFSA.
What sets an FHSA apart from the Home Buyers' Plan is that the funds withdrawn do not need to be repaid. This is a significant benefit, as it provides flexibility for Canadians looking to buy their first home without the pressure of repaying borrowed funds within a specific timeframe.
FHSA: Summary of Features
Eligibility:
- Must be a Canadian resident
- Must be 18 years or older
- Must be a first-time home buyer
FHSA Parameters:
- Account can stay open for 15 years or until the year following a qualifying withdrawal for a first home purchase, whichever comes first
- Account closes at the end of the year you turn 71
Contributions and Deductions:
- Contributions are tax-deductible
- Annual contributions are capped at $8,000, with a lifetime limit of $40,000
- Unused contribution room can be carried forward up to a maximum of $8,000
What If You Don't Purchase a Home?
- Unused funds can be transferred to an RRSP or RRIF on a non-taxable transfer basis, subject to applicable rules.
- Funds transferred to an RRSP or RRIF will be taxed upon ultimate withdrawal.
- If funds are withdrawn instead of transferred, they will be subject to taxes.
Qualifying Withdrawal:
- Must be a first-time homebuyer and a resident of Canada at the time of withdrawal.
- Must have a written agreement to buy or build a qualifying home located in Canada before October 1 of the year following the year of withdrawal.
- Must intend to occupy the qualifying home as your primary residence within one year of purchasing or building it.
FHSA vs. Home Buyers' Plan: What's the Difference?
The Home Buyers' Plan allows Canadians to withdraw up to $35,000 from their RRSP, subject to eligibility and conditions, and pay back the funds to their RRSP over 15 years. In contrast, the FHSA does not require repayment of funds, making it a more flexible option for those looking to save for a first home.
In summary, the FHSA will provide first-time homebuyers with another savings option to help them purchase a home, which is especially important given the high real estate prices in Canada. It's essential for first-time homebuyers to explore all available tools to optimize their savings and increase their chances of achieving their homeownership goals.
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Are you considering purchasing your dream home or looking to invest in a property? Or perhaps you're thinking of selling your current one? Allow me to guide you smoothly through the entire process, from start to finish, ensuring a hassle-free experience. I invite you to reach out for a complimentary, no-obligation consultation. Your journey to success begins with a single conversation!
Sami Chowdhury
Broker
RE/MAX Realtron Realty Inc., Brokerage
885 Progress Avenue, Suite 209, Toronto, Ontario, M1H 3G3
Fax: (416) 289-4535
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