Canadians will soon get a boost when it comes to saving for their first home. Starting in April of 2023, the Tax-Free First Home Savings Account (FHSA) will be available to those who have dreams of owning a home. This account is part of a campaign promise made by the Liberals in the last election. Here is what we know so far.
What You Need to Know
The FHSA will allow Canadians over the age of majority (age 19 for BC) to contribute up to $8,000 per calendar year, up to a lifetime contribution limit of $40,000, into the account. Unused contribution room can be carried forward into future years if not used. The account can stay open for 15 years from opening date, or until the end of the year you turn 71, whichever comes first. To open an account, you must be:
- Canadian Resident
- Over the age of majority in your province of residence (age 19 for BC)
- First-time home buyer, which means you, or your spouse or common-law partner, did not own a qualifying home that you lived in as a principal place of residence at any time in the year the account is opened or the preceding four calendar years
FHSA combines the best of the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). The contributions are tax deductible, and the money grows inside the account tax free. The money can then be withdrawn from the account without tax penalty.
The FHSA is unique because funds must be used to purchase a home. Any funds that are not used to purchase a home can be transferred to an RRSP or RRIF account on a rollover basis, and the RRSP/RRIF rules will apply going forward. It is also important to note that the transfer will not impact your RRSP contribution limits.
The Bottom Line
The government aims to make FHSAs available to individuals after March 2023; however, at the time of writing, the enabling legislation has not been enacted. The rules are still in draft, and any decisions on how best to save for the purchase on a home should be delayed if possible until the final rules have been enacted.
