What are the rules for the First Home Savings Account (FHSA)?

By: Kevin-Barry Henry, #1 Bestselling Author

In the last federal budget, the government announced a new plan aimed at helping first time home buyers save up for the deposit on their first homes on a tax-free basis. The plan is called the First Home Savings Account or FHSA, as the government does love a good acronym.

The details of the FHSA were murky or altogether non-existent at the time, but this week the Department of Finance announced more information about the rules of the plan. Like with an RRSP, the contributions to an FHSA would be tax-deductible, and withdrawals to purchase a first home (including investment gains) would be non-taxable, like the TFSA.

Here is what we know so far about the new rules:

Contribution Limits

The annual contribution limit is set at $8,000 and there is a lifetime contribution limit of $40,000.

Eligibility

Must be at least 18 and a resident of Canada. Must be a first-time home buyer, which is defined as someone who has not owned a home in which they lived at any time during the part of the calendar year before the account is opened or at any time in the preceding four calendar years.

Timing

The Finance Department said that it expects Canadians will be able to open and contribute to an FHSA “at some point in 2023” but they were not specific on a date. That said, accountholders will be allowed to contribute the full $8,000 annual limit for that year.

Qualified Investments

An FHSA will be permitted to hold the same investments that allowed in a TFSA, which include mutual funds, guaranteed investment funds, publicly traded securities, government and corporate bonds and GICs.

Contributions

Annual limit will be $8,000 and lifetime limit will be $40,000. An individual will also be allowed to carry forward unused portions of their annual contribution limit.

Deductions

Individuals will be able to claim an income tax deduction for contributions made in a taxation year. Contributions made within the first 60 days of a calendar year will not be attributed to the previous tax year, as they are with RRSPs.

Overcontributions

Like the TFSA, overcontributions will be subject to 1% tax.

Death

Like the TFSA, individuals will be permitted to designate their spouse or common-law partner as the successor accountholder, in which case the account maintains its tax-exempt status.

Overall, this is a new plan and although some of the details are probably still to come, it does seem like another tool in the toolbox, and indeed it looks like a great tool for someone who is looking to build a deposit for their first home.

If you would like to discuss the FHSA and how it could apply to you or someone you know, feel free to reach out to me for a free 15 minute zoom or phone call here: FREE 15 MINUTES.

As always, I look forward to hearing from you.

With Gratitude,

KB.

THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.