In the latest budget, the federal government introduced a new savings vehicle for the purchase of a first home. Let’s find out the details of this new program.
What is it?
The Tax-Free First Home Savings Account (FHSA) is a new tax-sheltered account, similar to an RRSP and TFSA, that you can use to save for the purchase of your first home.
Am I eligible?
You will be eligible if:
- You’re at least 18 years old
- DID NOT live in a home that you owned at any time in the year the account was opened or in the preceding 4 years
How much will I be allowed to contribute?
Your annual contribution limit is $8,000. Your lifetime limit is $40,000. You would be allowed to carry forward unused portions of your annual contribution limit up to a maximum of $8,000. The carry-forward amounts can be claimed on top of the $8,000 limit in a subsequent year.
Do I get a tax deduction when I contribute?
Yes, just like RRSP contributions, contributions you make to the FHSA are tax deductible.
Are my gains sheltered within the account?
Yes, any gains earned within the FHSA are tax-sheltered.
What happens when I make withdrawals?
Amounts withdrawn from the FHSA are non-taxable as long as they’re used to buy your first home. Amounts withdrawn from this account for any other purpose would be taxable.
You will only be able to make a withdrawal for a single property in your lifetime. Once you have made a qualifying withdrawal to buy your first home, you will be required to close the account. You also will not be able to open another FHSA.
Can I transfer amounts from the FHSA account to an RRSP/TFSA account?
You’re allowed to transfer amounts within your FHSA to an RRSP account. This transfer would be tax-free, and will not reduce your RRSP deduction limit. Unfortunately, you cannot transfer to a TFSA account.
You can also transfer funds from an RRSP account to a FHSA account. These transfers are tax-free and subject to the contribution limits mentioned above.
What happens if I don’t buy a home and I don’t transfer to an RRSP?
If you have not purchased your first home within 15 years of opening your FHSA account, you will be required to close your FHSA account and transfer the funds to an RRSP account.
Can I withdraw from my RRSP under the Home Buyer’s Plan and the FHSA account?
Yes, you can. Originally you were not able to, but the federal government amended this rule and now you can withdraw simultaneously from the FHSA and the Home Buyers’ Plan as long as you meet the criteria.
Will I be able to claim the Home Buyer’s Amount when I withdraw from the FHSA?
Yes, as long as you meet the conditions of the Home Buyers’ Amount.
When can I open an account?
You will be able to create your account sometime in 2023.
Conclusion
Filing Taxes concisely deals with several complex issues; it is recommended that accounting, legal, or other appropriate professional advice should be sought before acting upon any of the information contained therein. Our experienced and professional team at Filing Taxes is here to set you on the right path considering your personal business situation. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.