One recently introduced investment option is the First Home Savings Account (FHSA), a tax-free registered account designed to assist first-time homebuyers save for a down payment. An account holder can contribute as much as $8,000 per yr into an FHSA, as much as a lifetime maximum of $40,000 (double in the event you’re a part of a pair and each are first-time homebuyers). As long as those funds are ultimately used to buy your first home, deposits and withdrawals are tax-free. (Most registered accounts allow one or the opposite, however the FHSA allows for tax exemption on deposits and withdrawals.) This includes any income from interest, dividends or capital gains. The FHSA launched in Canada in April 2023 and is currently available through Fidelity Investments and other financial institutions.
The Canadian government already has some tools and programs in place for first-time home buyers, including the Home Buyers’ Plan (HBP) and the First-Time Home Buyer Incentive (FTHBI), so you could be wondering how the FHSA suits in here. We have answers to your questions on the FHSA, including information on how first-time home buyers can use these programs together.
How FHSA and HBP work together
The FHSA is a comparatively recent financial product, however the Home Buyers’ Plan has been available to Canadians since 1992. The HBP is basically a loan out of your RRSP with no taxes or penalties on early withdrawal. Here’s how it really works.
If you’ve got money saved in a registered retirement savings plan (RRSP), you may “borrow” money to make use of for a down payment on the acquisition of a professional home. The HBP’s withdrawal limit was recently increased from $35,000 to $60,000, as proposed within the 2024 federal budget. The recent limit will apply to withdrawals made after April 16, 2024. (For more information on the HBP, see the Government HBP website.)
A “qualified home” includes most residential properties akin to condos, townhouses, duplexes and single-family homes, which might be newly built or used. You have to be a first-time homebuyer, meaning someone who has not owned a house previously 4 years, and in addition be a resident of Canada. If you’re using the HBP to purchase your first home with a spouse or common-law partner, you furthermore may must not have lived in your partner’s home during that four-year period.
If you’ve got withdrawn money out of your RRSP under the HBP, you’ve got as much as 15 years from the tip of the repayment period (which was recently modified from two to 5 years) to finish your HBP repayment.
While initial reports suggested that the FHSA couldn’t be used along side the HBP, the federal government has since clarified that these programs might be used together (so long as you meet all the necessities for every program). So if you’ve got $60,000 available in your RRSP and $25,000 saved in a FHSA, you should use $85,000 for the down payment in your first home without affecting your income taxes. You would simply must pay the borrowed amount back into your RRSP inside the subsequent 15 years to fulfill your HBP repayment obligation.
But wait, there’s more.
