One recently introduced investment option is the first home savings account (FHSA), a tax-free registered account that’s designed to help first-time home buyers save for a down payment. An account holder can contribute up to $8,000 per year to an FHSA, up to a lifetime maximum of $40,000 (double that if you’re part of a couple and you’re both first-time home buyers). As long as these funds are eventually used to purchase your first home, deposits and withdrawals are tax-free. (Most registered accounts allow for one or the other, but the FHSA allows for tax sheltering on contributions and withdrawals.) This includes any income earned from interest, dividends or capital gains. The FHSA was launched in Canada in April 2023, and it’s currently available through Fidelity Investments and other financial institutions.
The Canadian government already had a few tools and programs for first-time home buyers, including the Home Buyers’ Plan (HBP) and First-Time Home Buyer Incentive (FTHBI), so you may be wondering how the FHSA fits in. We’ve got answers to your FHSA questions, including how first-time buyers can use these programs together.
How the FHSA and HBP work together
The FHSA is a fairly new financial product, but the Home Buyers’ Plan has been available to Canadians since 1992. The HBP is essentially a loan from your RRSP without any taxation or early withdrawal penalties. Here’s how it works.
If you’ve been saving money in an RRSP (registered retirement savings plan), you can “borrow” up to $35,000 of those funds to put towards a down payment on the purchase of a qualifying home. So, you will have to pay it back. A “qualifying home” includes most residential properties such as condos, townhomes, semi-detached houses and detached homes, which can be new builds or previously owned. You must be a first-time home buyer, which is defined as someone who hasn’t owned a home in the past four years, and also be a resident of Canada. If you’re using the HBP to purchase your first home with a spouse or common-law partner, you also cannot have lived in a home owned by your partner during this four-year period.
Once you’ve withdrawn money from your RRSP under the HBP, you have up to 15 years to complete your HBP repayment. This essentially means you have to contribute an equal or greater amount of funds back into your RRSP in that 15-year period.
While initial reports suggested that the FHSA could not be used in conjunction with the HBP, the government has since clarified that these programs can be used together (as long as you meet all of the conditions for each program). So, if you’ve got $35,000 available in your RRSP and $25,000 saved in an FHSA, you can put $60,000 towards the down payment of your first home with no impact on your income tax. You’d just have to re-contribute $35,000 or more to your RRSP within the next 15 years to fulfill your HBP repayment obligation.
But wait—there’s more.
Using the FHSA and the FTHBI for a first home
The First-Time Home Buyer Incentive was launched in 2019 as part of Canada’s National Housing Strategy. It’s a temporary federal program that provides qualifying first-time home buyers with a loan that serves as down payment assistance, and it can be used along with the FHSA and other government programs. The FTHBI deadline was recently extended from September 2022 to May 2025.
Erin Pepler
Source link
