Can I proceed to make use of my FHSA after my spouse purchases a condo?

In CRA’s words, you might be considered a first-time home buyer if:

Here are the CRA qualifications to make use of the funds for a house purchase:

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Did you notice the difference between the 2 definitions? If you might be withdrawing from the account to buy a house, the definition doesn’t mention a spouse. For an account, it matters in case your spouse owns a house, but not if you’ve a brand new home.

The other different clause within the definition is “except for the 30 days immediately preceding the revocation.” This is significant. You must withdraw funds out of your FHSA inside 30 days of closing; otherwise, it is not any longer a certified withdrawal and the withdrawal can be taxed. I do know you are considering that you will use the cash for the down payment, so it won’t be an issue. Maybe, but what if you’ve other money for the down payment and plan to make use of the FHSA for home furnishings or renovations? The 30 days can pass quickly before you get around to withdrawing the cash.

Again, it’s good so that you can proceed contributing to your FHSA after which use the funds to buy your first home, even should you live along with your wife in the house she owns.

Other FHSA rules price noting

You made a extremely good decision to make use of the FHSA to avoid wasting for a house. It is one in every of, if not the perfect, account for anyone who qualifies and plans to purchase a house sometime in the subsequent 15 years. When used as intended, you receive a tax deduction on the funds you contribute, similar to you’d with a Registered Retirement Savings Plan (RRSP). Then, while you withdraw money to buy a house, your money comes out tax-free, similar to a Tax-Free Savings Account (TFSA). It’s the perfect of each worlds – you pay taxes on that cash whether you come or go!

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You can add $8,000 per 12 months to an FHSA, as much as a maximum contribution limit of $40,000. The tax deduction doesn’t must be claimed within the 12 months you make the contribution and will be saved for future years when you’ve higher income. When you apply for and receive your tax refund, do your best to maintain it. It will be added to an RRSP so you possibly can benefit from the RRSP Home Buyers Plan, or to a TFSA.

It’s essential to notice that you would be able to make up contributions beyond the FHSA contribution limit, but only as much as the 12 months you opened the account. This is different from a TFSA, where you possibly can return to your 18th birthday or the TFSA’s inception date (2009), whichever is earlier.

If you catch up, you possibly can only add a maximum of $16,000 to an FHSA in a single 12 months, meaning you possibly can only catch up one 12 months at a time. Anyone seeking to buy a house without an FHSA and further money should consider borrowing $8,000 to open an FHSA. You can claim the $8,000 as a tax deduction and use the tax savings to buy one or two devices. For someone in a 30% tax bracket, you’d profit from a tax savings of about $2,400. Once your own home closes, you possibly can withdraw the $8,000 and repay the loan, and you’ll have paid little or no interest.

The FHSA Escape Clause

If it seems you may never have the option to purchase a house or make a certified withdrawal, you possibly can roll your FHSA money over to an RRSP. You do not get a tax deduction since you received it while you contributed to the FHSA. What you do get, nonetheless, is a further $40,000 in RRSP contribution room.

That was a great query, Shelly. The FHSA is a great, seemingly straightforward report – but you’ve to agree with the definitions.

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About Allan Norman, MSc, CFP, CIM

With over 30 years of experience as a financial planner, Allan is an Associate Portfolio Manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyle without fear of running out of cash.