The Government of Canada has recently introduced a new savings account, the First Home Savings Account (FHSA), aimed at helping Canadians save for their first home. With the FHSA set to launch on April 1st, 2023, many Canadians are curious about the details of this new account type. In this article, we will provide an overview of the FHSA, including who qualifies for the account, how much can be contributed, and how funds can be withdrawn. We will also discuss some potential implications for those with U.S. ties and provide updates on any new information as it becomes available.
Do you know when the First Home Savings Account (FHSA) will be available?
The Canadian Government has announced that the FHSA will be available from April 1st, 2023, and eligible account holders can contribute up to $8,000 to their FHSA in that year, despite the account not being available until April.
Do I qualify for an FHSA?
- To qualify for an FHSA, you must be at least 18 years old, a resident of Canada, and not have owned a home that you or your spouse/common-law partner lived in during the year the account is opened or the previous four years. Proof of meeting these criteria is required when opening an FHSA account at a financial institution.
- If you leave Canada after opening an FHSA account, you can continue to contribute, but cannot make a qualifying withdrawal while a non-resident.
- You must also meet the qualification criteria at the time of withdrawal, and any withdrawals made while a non-resident will be subject to withholding taxes.
- If you move to Canada, you will be eligible to open an FHSA account once you meet the qualification criteria. It’s worth noting that foreign properties where you lived before moving to Canada will be considered when defining a first-time homebuyer. If you have ties to the U.S., it’s recommended that you consult a cross-border tax specialist to understand any potential adverse U.S. tax consequences of investing in an FHSA.
What is the contribution limit for an FHSA?
Eligible Canadians can contribute up to $8,000 annually to their FHSA, with a lifetime maximum of $40,000 per person. The limits are not per account but per person, meaning that you can hold multiple FHSA accounts but the $8,000 annual limit applies to all accounts together. Unused contribution room carries forward to future years up to a maximum of $8,000. Unlike a TFSA, you won’t accrue contribution room unless you have an FHSA account opened.
Is investment income earned inside the FHSA tax-sheltered?
Yes, investment income and growth earned inside the FHSA are tax-sheltered, and contributions made to the account are tax-deductible. Funds can also be transferred into an FHSA from an RRSP, but the transfer would not be tax-deductible, and it would not create new RRSP contribution room.
Who can contribute to my FHSA?
You are the only person who can contribute to your FHSA, and a spouse or family member cannot make contributions to it. However, you can use funds gifted to you by a spouse or family member to contribute to your own FHSA without attribution rules applying. You cannot contribute to a child’s FHSA, but you can gift them funds that they use to contribute themselves.
What is the maximum amount that can be withdrawn from the FHSA?
- All contributions made to the FHSA, as well as any investment income or growth generated by funds invested in the account, can be used to purchase a qualifying home. Withdrawals made for any purpose other than to purchase a qualifying home will be fully taxable.
- If you are purchasing a qualifying home with a spouse/common-law partner, you can both use funds from your own FHSA towards the purchase, effectively doubling the amount that can be used towards the purchase. Wording preventing the use of both the FHSA and the RRSP Homebuyers’ Plan on the same property was removed from the final legislation, indicating that both can now be used towards the purchase of a qualifying home.
Additional details about the FHSA are expected to be released closer to April 1st, and we will continue to provide updates as more information becomes available.
Ready to start planning for your first home? Let’s work together to explore how the First Home Savings Account can help you achieve your dream. Contact me today to schedule a consultation.
