The First Home Savings Account
A tax-Advantaged Path to Homeownership
What you need to know about the FHSA
Contributions and withdrawals
The FHSA is a registered plan that allows first-time home buyers to make up to $40,000 in pre-tax contributions toward the purchase of a new home.
This means that, when you contribute to your FHSA, you can claim a tax deduction in much the same way you would with your RRSP – either in the year the contribution is made or in a later year. The main difference is that FHSA contributions made during the first 60 days of the year are not deductible on your previous year’s income tax return.
The FHSA has an annual contribution limit of $8,000, but if you don’t contribute the full amount in one year, you can carry forward the unused room to a subsequent year.
Eligibility
Despite its name, the FHSA isn’t limited to people who have never owned a home. If in the last four years you have not lived in a home that you, your spouse or common-law partner owned, you meet Canada Revenue Agency’s definition of a first-time home buyer and are free to take advantage of the FHSA.
To open an FHSA, you must be at least 18 years of age (or the age of majority in your province or territory) and a resident of Canada. The life of the account is capped at 15 years, and it cannot stay open past the end of the year you turn 71 or December 31 of the year following your first qualifying withdrawal.
FHSA versus Home Buyer's Plan
The FHSA is not the only tax-advantaged option for first-time home buyers. The Home Buyers’ Plan (HBP) has a withdrawal limit of $35,000, while there is no limit on FHSA withdrawals – a major bonus if your FHSA contributions are invested in securities that experience high levels of growth.
Importantly, you don’t have to choose between the FHSA and HBP. If using both fits your unique circumstances, you’re free to do so. Your Senior Wealth Advisor can help you decide what’s right for you.
Questions and Answers
- What types of investments can I hold in an FHSA? You can hold a wide variety of investments, including mutual funds, exchange-traded funds, stocks, bonds and GICs. This allows you to grow and compound your savings – increasing the amount you’ll have available when it’s time to make a withdrawal.
- Can I share an FHSA with my spouse? An FHSA can only be registered to one person, and all contributions must be made by the account holder. In the same vein, the associated tax deductions can only be claimed by the account holder. However, you are allowed to give funds to your spouse to make an FHSA contribution. Importantly, the Canada Revenue Agency has granted an exemption from the attribution rules in such cases. The same exemption holds when funds are gifted to adult children for FHSA contributions.
- What happens if I over-contribute? A 1% tax will be applied to the excess amount for each month it’s in your FHSA, so be sure not to overcontribute.
- What if I don’t buy a home? If you don’t use the funds in your FHSA to buy a home, you can transfer them o your RRSP (or RRIF) tax-free. These transfers will not reduce your RRSP contribution room, and the amount you transfer is not limited by the room you have available in your RRSP.
Despite soaring prices, homeownership remains a priority.
67% of Canadians say buying a home is a priority.
43% say they plan to purchase a home in the next five years.
37% of those aged 18 – 34 plan to purchase a home within the next three years.
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This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
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