Great News for First-Time Home Buyers: The Tax-Free First Home Savings Account!

The government of Canada has introduced the Tax-Free First Home Savings Account (FHSA) that will be available some time in 2023. This new registered plan would give the first-time home buyer the ability to save $40,000 on a tax-free basis! Just like an RRSP, contributions would be tax-deductible, and withdrawals to buy their first home would be non-taxable.

The key design features of the FHSA include:

•        $8,000 annual contribution limit
•        Option to carry over any savings not contributed, to the next year (ex: if you only deposit $5,000 in 2023, you can deposit $11,000 in 2024)
•        $40,000 lifetime contribution limit
•        No matter when this is available in 2023, Canadians would be allowed to contribute the full $8,000 limit in that year

 Spousal Contributions:

The account holder would be the only one permitted to claim deductions for contributions made to their FHSA. Individuals would not be able to contribute to their partner’s FHSA and then claim a deduction. BUT, a person could deposit to their FHSA from money provided to them by their spouse or common-law partner.

Qualifying Withdrawals:

•        Must be a first-time home buyer at the time the withdrawal is made
•          Buyer must have a written agreement to buy or build a qualifying home
•        The buyer must intend to occupy the home as their principal place of residence
•        If the account holder meets all qualifications, they can withdraw the entire amount available in their FHSA, tax-free in one lump sum or in a series of debits

To open an FHSA:

•        The individual must be a Canadian resident
•        Must be 18+
•         Must be a first-time home buyer

Unused Savings:

Any savings not used to purchase a qualifying home could be transferred on a tax-free basis to an RRSP, or would otherwise need to be withdrawn on a taxable basis.

For more information and details on topics like qualified investments, qualifying homes, transfers, interaction with the regular Home Buyers Plan, or what happens with the FHSA when it comes to marital break downs, please visit The Government of Canada Website.

****Not to be used as advice. For informational purposes only. Consult with an accountant, mortgage broker and other professionals***