Why this message to you today? The FHSA (First Home Savings Account) was just recently introduced in the 2022 Federal Budget and is set to become available to Canadians on April 1st, 2023. It will provide Canadians with an alternative Tax Efficient way to save for a down payment on their first home.
What Is A First Home Savings Account? The First Home Savings Account combines much of the same benefits of the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). With the First Home Savings Account Canadians will be able to contribute up to $8,000 per year up to a maximum of $40,000 per individual. Any contributions will be considered a tax deduction, much like an RRSP, and any investment growth in the account is not taxable. Any withdrawals for the purchase of a qualified primary residence are also tax-free, similar to TFSA withdrawals, and account holders will have up to 15 years before they would need to withdraw and use these funds. Any withdrawals not used for the purchase of a home would then be added to your income for the year and would then be taxable.
Who Qualifies For A First Home Savings Account?
- You must be at least 18 years old.
- You can not own a home in the year the account is opened or in the previous 4 years.
- You must be a resident of Canada
- The FHSA must be used for the purchase of a primary residence and not for the purchase of an investment or leisure property.
Why should this be important to you?
This provides Canadians with a tax-efficient sheltered account to save for the purchase of their first home. Your contributions would provide a tax deduction which could provide a tax refund that could be re-contributed back into the FHSA allowing you to multiply your original contribution. Parents can also help their children by gifting them the funds to contribute to the Tax-Free Home Savings Account allowing them to pass on intergenerational wealth and moving funds that are taxable in the parent’s hands into their children’s tax-sheltered account.
The bottom line:
The First Home Savings Account provides Canadians with a great way to save for the purchase of their first home and helps bring the dream of owning a home closer.
Road To Mastery Principle: It is always best to work from a position of strength by being proactive in considering all of your options.