First Home Savings Account (FHSA)
The Canadian Federal Government has set out to help first-time home buyers achieve their goals.
While mortgage rates and the prices of homes have continued to rise, many Candians seeking to buy their first home are in need of financial support.
The good news is that the FHSA, a new registered savings plan for Canadians, is now available for qualified residents.
How can a savings account help you with the purchase of a home? The answer is simple: taxes.
All funds deposited and withdrawn from your FHSA are tax-free.
Do I Qualify?
In order to qualify for an FHSA, you need to be a Canadian resident that is at least 18 years of age, and have not resided in a home that you’ve owned in the previous four calendar years.
So what does this mean?
This means that if you owned a home earlier in your life, but have been renting for the previous four calendar years (at the time you withdraw money from the FHSA), you’ll still be qualified for the plan, even if you’ve technically already purchased a home in the past.
Is there a limit on how much money I can put towards the FHSA? Yes.
You’re able to contribute up to $8,000 annually and up to $40,000 over your lifetime, at a maximum of 15 years.
If you don’t actually put the full $8,000 into the FHSA in a given year, you’re able to carry that forward into the next calendar year.
For example, if you put $2,000 into your FHSA in the first year, you’d be able to contribute $10,000 towards it in the second year.
How does it work?
You’re able to get an FHSA from any bank, credit union, or financial institution that already issues Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs).
As far as what can be put into your FHSA, think savings and investments – any qualified investment that can be held in a TFSA can also be held in a FHSA (ex: mutual funds, bonds and GICs).
What are the differences between FHSA, TFSA and RRSPs?
In a way, an FHSA takes the best of both worlds from what a TFSA and RRSP can offer.
Any contributions you make towards the FHSA are tax-deductible and any withdrawals you make for the purchase of what the government defines as a first-home, are tax-free.
When you contribute to an RRSP, you get a tax-deduction, but when you withdraw, you are taxed.
The opposite is true for a TFSA, where any contributions you make are non-deductible, but withdrawals are tax-free.
So with an FHSA, you get tax-deductible contribu tions AND tax-free withdrawals.
What happens if my plans change?
If you decide not to purchase your home using the FHSA after you’ve already contributed, you’re able to transfer those funds to an RRSP, or Registered Retirement Income Fund (RRIF), tax-free.
If you don’t transfer the funds to an RRSP or RRIF, and instead withdraw the funds from your FHSA to use for something other than the purchase of your first home, then those funds will be considered taxable income.
One of the biggest benefits of working with a mortgage broker is that you get tailored service specific to your financial needs.
If you have any questions regarding FHSAs, or TFSAs, or RRSPs, or anything relating to mortgages, feel free to give me a call and I’ll gladly help wherever I can.