Starting from 2023, Canadians can save for their first home using a new tax saving vehicle: First Home Savings Account (FHSA). According to Canada.ca, A first home savings account (FHSA) is a registered plan which allows you, if you are a first-time home buyer, to save to buy or build a qualifying first home tax-free (up to 40,000 in total).
One step closer to owning your first home.
Like a Registered Retirement Savings Plan (RRSP), contributions to FHSA are tax-deductible, and withdrawals to purchase a first home—including from investment income—are nontaxable, like a Tax-Free Savings Account (TFSA).
How much can you contribute to an FHSA?
• You can contribute $8,000 each calendar year. The lifetime limit on contributions is $40,000.
• You can claim an income tax deduction for contributions made each tax year. Unlike RRSPs, contributions made within the first 60 days of a given calendar year are not attributable to the previous tax year.
• For tax purposes, FHSA contributions can be carried forward and deducted in a later tax year.
• Once you open the FHSA, the contribution room will appear on your notice of assessment.
How much can you contribute?
• Unlike a TFSA, you do not accumulate contribution room if your FHSA has not yet been opened.
• If you withdraw money from your FHSA unrelated to a home purchase, this contribution room is not reinstated the following year.
• You can carry forward any unused portions of your annual contribution limit, but your carry forward amount must not exceed $8,000 and you cannot contribute more than $16,000 in the same calendar year.
What is a qualifying withdrawal?
• You must have a written agreement to buy or build a home in Canada by October 1st of the year after you make the withdrawal.
• You must intend to live in the home as your principal residence within a year of buying or building it.
• All FHSA funds may be withdrawn on a tax-free basis in a single withdrawal or a series of withdrawals. There is an exception that allows you to make qualifying withdrawals within 30 days of moving into your home.
How does the FHSA compare to the RRSP Home Buyer’s Plan (HBP) and TFSA?
How long can I keep the FHSA? What if I decide not to use my savings to purchase a home?
• Your FHSA can remain open until December 31 of the year you turn 71.
• If you have not used the money 15 years after opening the account, the balance can be transferred to an RRSP or RRIF on a tax-free basis. If you do not transfer it by December 31 following the 15th anniversary after opening your first FHSA, the account balance is declared as income and is taxable.
The information is for reference only. Talk to us today to get faster to your first home using First Home Saving Account.
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