As Spring comes around, so does this new incentive by the government of Canada. Want to learn about the first home savings account, this post got you.
PS: I think this savings account is perfect for people looking to buy their first home in the next few years (still doesn’t solve the housing issue but heyy). Personally, I’m all for anything that reduces taxes so if you are looking to buy your first home soon and want to reduce your taxes, I suggest you max out your FHSA.
What is an FHSA?
The Tax Free Home Savings Account (FHSA) is a savings account created specifically for residents of Canada saving towards their first homes. Like other registered savings account such as an RRSP or TFSA, there are tax benefits associated with an FHSA. Contributions made to an FHSA can be deducted from your taxes similar to an RRSP. Gains from investments in your FHSA are not taxable (similar to a TFSA). Unlike the Home Buyer’s Plan, you do not need to return the money withdrawn to purchase your first home.
How it works
To be able to contribute to an FHSA, you need to be a resident of Canada, a first time home buyer and be at least 18 years. Your FHSA is valid for either 15 years from when you open it or when you turn 71 (the first one to happen). After that, it can be transferred to an RRSP or RRIF.
Over your lifetime you can contribute up to $40,000 into your FHSA. However, you can only contribute $8,000 annually. Any unused room can be rolled over to the next year.
So, if you are only able to put $3,000 this year, you can put up to $13,000 next year.
You can have multiple FHSA accounts just make sure you don’t put more than $8,000 annually.
What type of investments can I hold in an FHSA?
Similar to a TFSA, you can hold cash, mutual funds, stocks, ETFs, government and corporate bonds, and GICs.
When Can I Make A Withdrawal?
You can make a withdrawal on an FHSA if:
1) You are a first time home buyer
2) You are buying a qualifying home in Canada
3) You have a written agreement to buy/build a home by October 1st of the year after the withdrawal and you plan to live in this home within one year of buying or building it.
Recent legislature permits you to make a withdrawal from your FHSA and HBP for the same qualifying house so you can use both the FHSA and HBP for your first home.
What if I change my mind and no longer want to buy a home after contributing to an FHSA?
That’s alright, you can transfer the funds saved in an FHSA to an RRSP or RRIF without it affecting your RRSP contribution room or limit. However, that doesn’t restore your lifetime contribution. So if you contributed $8,000 in 2023 and decided you didn’t want to buy a house in 2024, you can transfer the $8,000 to your RRSP but in 2025, your lifetime contribution limit is $32,000 ($40k less the $8k you transferred to the RRSP).
Can I contribute to my spouse’s or child’s FHSA?
You can contribute to your spouse or child’s FHSA however, you do not get to make the deduction of this contribution on your tax return.
FHSA, RRSP or TFSA, which would I recommend?
First of all, if your employers matches your RRSP contribution, I’ll say put down the percentage they are willing to match – don’t say no to free money. Personally, I will say to put your money in an FHSA first since you get a tax deduction in the year you contributed and the gains in there are not taxable. Under the home buyers plan (HBP), you can borrow money from your RRSP but you need to pay it back 15 years after your withdrawal. The FHSA doesn’t have any payback period so I would pick the FHSA over an RRSP.
Gains from your TFSA are not taxable however, you are putting post tax dollars into this account so you are not able to deduct the contributions made to this account from your taxes. In this case, I would say the FHSA is better than the TFSA.
That’s it for this post, is there anything else you would like to know regarding the FHSA? Would you be using the FHSA? If there is anything you would like to know please feel free to reach out. Finally, if you found this post helpful, please share with your friends and family.