If you dream of buying your first home in Canada, saving for a down payment can be challenging, especially with rising housing prices and other expenses. Fortunately, Canada has introduced a new option to help you reach your saving goals faster: the First Home Savings Account (FHSA).
What is the First Home Savings Account (FHSA)?
The FHSA is a type of registered account designed to help Canadians save to buy their first home, namely the down payment, which is generally 20% of the total cost of the property. You can contribute up to $8,000 per year to a First Home Savings Account, with a lifetime limit of $40,000. Contributions are tax-deductible, meaning you can lower your taxable income by the amount you put into your FHSA. Moreover, any investment income you earn inside your FHSA is tax-free, meaning you don’t have to pay any tax on interest, dividends, or capital gains. This can help your savings grow faster and compound over time.
When you are ready to buy your first home, you can withdraw money from your FHSA tax-free if you use it for a qualifying home purchase. A qualifying home is a residential property in Canada that you intend to occupy as your principal residence within one year of buying or building. You must also be a first-time home buyer, meaning you have yet to own a home in which you lived at any time during the part of the calendar year before opening your FHSA or at any time in the preceding four calendar years.
You can open a FHSA if you are a resident of Canada and at least 18 years old. You can keep your First Home Savings Account until December 31 of the year you turn 71 or until 15 years after opening it, whichever comes first. If you don’t use your FHSA savings for a qualifying home purchase by then, you can transfer the funds to an RRSP or RRIF tax-free or withdraw them and pay tax.
How to open an FHSA?
You can open a First Home Savings Account at most financial institutions. Fisgard has recently started offering FHSA! To open your FHSA account, you will need to provide your social insurance number and sign an application form.
Our team will then register your FHSA with the Canada Revenue Agency (CRA) and issue you a confirmation. You can hold various investments. Always consider investments that suit your risk tolerance, time horizon, and financial goals. You should also review your portfolio regularly and make adjustments as needed. You can contribute to your First Home Savings Account any time during the year if you don’t exceed your annual or lifetime limits. You can also transfer money from another registered plan to your FHSA, such as an RRSP or TFSA, subject to certain rules and limits. You can check your contribution room on your notice of assessment or by using CRA’s My Account service.
You can withdraw money from your FHSA anytime for any reason, but only withdrawals for a qualifying home purchase are tax-free. If you withdraw money for any other reason, you will have to pay tax on it and report it as income on your tax return. You will also lose the contribution room you used for that withdrawal and won’t be able to re-contribute it later.
Benefits of Canada’s First Home Savings Account
It helps you save more money for a down payment by reducing your taxes and allowing your investments to grow tax-free.
It gives you flexibility and control over how much and when you save and invest.
It allows you to access your savings tax-free when you buy your first home.
It complements other programs that support first-time home buyers, such as the Home Buyers’ Plan (HBP), the First-Time Home Buyer Incentive (FTHBI), and the First-Time Home Buyer Tax Credit (HBTC).
The FHSA is a new and innovative way to help Canadians achieve their homeownership dreams. If you are interested in opening a FHSA or learning more about it, contact our team.
Saving for your first home?
Our team has plenty of resources to guide you through the process of opening an FHSA. Reach out today!