Learning about the new First Home Savings Account (FHSA) program
May 15 2023 Posted by John C Filice
With the market starting to stabilize, and in many markets housing prices starting to rise again, maybe you or someone you know is looking at purchasing their first home before home prices rise too much. Canadians are realizing that we are unlikely to ever see interest rates like we did during COVID, and that the housing market is unlikely to correct much further given Canada's current economic forecasts, which has given buyers the nudge they need to re-enter the market. If you or someone you know is considering this, there's some good news. The federal government has recently introduced a new program to help first-time home buyers save for their dream home: the First Home Savings Account (FHSA).
The FHSA is a registered plan that allows you to save up to $40,000 in a tax-free account for your first home purchase. The plan allows you to contribute up to $8,000 per year and deduct your contributions from your taxable income, just like an RRSP. You can also carry-forward unused contribution room into the following year, just like an RRSP. Any interest accumulated inside the plan is tax-free and when you are ready to buy your first home, you can withdraw your savings tax-free, just like a TFSA. While $40,000 may not seem like nearly enough for a downpayment in many markets, there are also additional programs that you can leverage – and every penny counts towards getting you that first home.
The FHSA can complement the existing Home Buyers' Plan (HBP), which allows you to withdraw up to $35,000 from your RRSPs to buy or build a qualifying home. You can use both programs together to boost your savings and reduce your taxes. The reduction in taxes can make saving to max out these programs easier, and is an important part of the program.
To be eligible for the FHSA, you must meet the following conditions:
- You must be a resident of Canada and at least 18 years old.
- You must not have owned a home or lived in a home owned by your spouse or common-law partner in the past four years.
- You must have a written agreement to buy or build a qualifying home for yourself or for a related person with a disability.
- You must intend to occupy the qualifying home as your principal residence within one year of buying or building it.
If these criteria sound like someone you know, give me a call and we can discuss and plan for how these programs can be leveraged to get them into a new home. You can open an FHSA at any time now, and start reaping the tax benefits. If you are interested in learning more about the FHSA and how it can help give me a call today.