With news of high interest rates and housing costs making headlines daily, purchasing your first home can feel like an unattainable goal. Saving for a down payment is a long game that can take dedication and strict budget management. Fortunately, there are several government programs designed to help you you achieve home ownership. The most recent is the First Home Savings Account, introduced in April of 2023.
What is the First Home Savings Account?
The First Home Savings Account (FHSA) is a registered plan that allows residents to contribute up to $40,000 tax-free towards their first home. Qualifying individuals can contribute up to $8000 annually, with tax-free growth (even on the interest accumulated) to be used as a down payment for their first home. Unlike the Home Buyers’ Plan that allows you to borrow your down payment from your RRSPs, there is no repayment requirement with the FHSA.
Am I Eligible?
To qualify for this account, you must be:
- A Canadian resident.
- Between 18 and 71 years old on the year the account is open.
- A first-time homebuyer.
What Are the Benefits of This Account?
- Reduced taxable income – Any amount contributed to the FHSA can be used to reduce your taxable income. One caveat to this is that transfers from an existing RRSP to the FHSA are not tax deductible, only direct contributions.
- Tax-free withdrawals – You will not pay taxes on any qualifying withdrawal from the FHSA when you are ready to use the funds to purchase a home.
- Flexible investment options – Account holders can choose to grow their money tax-free through an interest savings account and a GIC. When withdrawn, the growth on your contributions will also not be taxed.
- Flexible contributions – Account holders can carry over unused contribution room to the next year, up to a maximum of $8000. For example; if the account is opened in 2024, but no contribution is made until 2026, the total contribution room available for 2026 would be $16,000 ($8000 carried over from 2025, and $8000 for the 2026. 2024 would not be carried over).
- Claiming missed contributions – If you miss claiming some or any of the contributions to the FHSA in that year’s income tax return, you are able to claim the amount in future years tax returns.
- Transfers – Making a tax-free transfer from your RRSP account into the FHSA will utilize the annual FHSA participation room available (but will not restore the unused RRSP deduction room). On the reverse, tax-free transfers from the FHSA to an RRSP or RRIF will not impact the unused RRSP deduction room or the FHSA participation room.
- No waiting period for fund withdrawal – There is no limit to the number of days a contribution must stay in an account before the funds can be withdrawn. However, it is important to note that most lenders require proof of the source of down payment for 90 days; if the deposit in to your FHSA has not been in the account for 3 months, additional documentation will be requested.
- Multiple FHSA’s allowed – Individuals are able to open multiple First Home Savings Accounts. The same maximum annual contribution of $8000 is applied to them all.
How Do I Open A First Home Savings Account?
Each financial institution may have a slightly different approach to the account opening process, so be sure to speak to your trusted representative before deciding this is the best account for you.
Unsure of where to begin or how much you even need to save to qualify for your first home? Questions about the other government First Time Homebuyer programs? Our team is here to walk you through the purchasing process step-by-step; it’s never too early to have the conversation about owning your home and we are thrilled to support you in planning for this milestone. Speak to one of our brokers to get started today and make your home ownership goal a reality.
