Investing and Saving
Canadians now have another way to help them reach their goals of becoming homeowners. The First Home Savings Account (FHSA), a new registered account launched in 2023, combines aspects of the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) to assist first-time home buyers.
Similar to an RRSP, contributions to an FHSA are tax deductible. However, unlike RRSPs the contributions you make within the first 60 days of the year cannot be used to reduce the previous year’s income. They can only be deducted from your income in the current year or a future year. The maximum annual contribution is $8,000 with a lifetime contribution limit of $40,000. Plus, similar to a TFSA, qualifying withdrawals come out on a tax-free basis.
There are a few conditions in order to open an FHSA. The account holder must be at least 18, and a first-time home buyer. This means that at the time the account is opened, neither you, nor your spouse or common-law partner, have owned or jointly owned a home that you lived in during the part of the calendar year before the account was opened or in any of the preceding four calendar years.
Prospective home buyers can also combine their FHSA with the Home Buyers’ Plan (HBP). This plan allows first-time homebuyers to withdraw up to $35,000 from their RRSP on a tax-free basis. The funds then have to be paid back to their RRSP within 15 years starting the second year after your first withdrawal. Combined, a home buyer fully maximizing both programs could withdraw over $75,000 tax-free.
| . | First Home Savings Account | Home Buyers’ Plan |
|---|---|---|
| Eligibility | Canadians 18 or older who are first-time home buyers | Canadian residents with RRSPs who are first-time home buyers. |
| Annual contribution limit | $8,000 (to a maximum of $40,000) | N/A (Although contribution limits apply to the RRSP). |
| Lifetime withdrawal limit | Full value of the account at time of withdrawal | $35,000 |
| Tax implications |
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FHSAs offer a new option for those saving and investing towards a down payment on a first home. Reach out to one of our ATB Wealth advisors who can start working with you today on the best approach to reach your financial goals.
Learn more about the First Home Savings Account
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