A first home savings account (“FHSA”) is a new registered plan allowing prospective first-time home buyers, to save towards the purchase of a first home. The FHSA combines some of the beneficial tax features of an RRSP and TFSA. An individual can contribute up to a maximum of $8,000 annually (a lifetime maximum of $40,000). Contributions made are tax deductible. Withdrawals made towards a downpayment of a first home are received tax-free.
Eligibility criteria
To open an FHSA, you must be a qualifying individual by meeting all of the conditions as outlined below:
- You must be between 18 and 71 years old;
- You must be a Canadian resident for income tax purposes with a valid SIN; and
- You must not have owned a home in the current or past 4 years (i.e. a first-time home buyer).
Contributions
- $8,000 annually;
- $40,000 lifetime maximum; and
- Unused contributions can be carried forward.
It is important to note that the contribution period for the FHSA aligns with the calendar year. If you exceed any of the contribution thresholds, a tax of 1% of the highest excess FHSA amount in a month is applicable for each month the excess remains in the account.
Notwithstanding the above, it is important to note that the following contributions to a FHSA are not tax-deductible:
- During the first 60 days of the year cannot be deducted on your personal income tax return for the previous year, unlike contributions to an RRSP;
- Contributions made after the first qualifying withdrawal (discussed below);
- An excess FHSA amount you designate as a withdrawal;
- Amounts that exceed your lifetime FHSA limit of $40,000;
- Transfers from your RRSPs to your FHSA
Investments in FHSA
A FHSA is required to limit its investments to qualified investments. Generally, the types of investments that are permitted in a FHSA are the same as those permitted in a RRSP and TFSA.
A key advantage of the FHSA is that funds in the account grow tax-free, which could mean more money for a qualifying home purchase.
Withdrawals from FHSA
A qualifying withdrawal is not required to be included as income and is received tax free.
A qualifying withdrawal from your FHSA is where all of the following conditions are met:
- Must be a first-time home buyer.
- You must have a written agreement to buy or build a qualifying home with the acquisition or construction completion date of the qualifying home before October 1st of the year following the date of withdrawal.
- You must have not acquired the qualifying home more than 30 days before making the withdrawal.
- You must be a resident of Canada from the time that you make your first qualifying withdrawal until the earlier of the acquisition of the qualifying home or the date of your death.
- You must occupy or intend to occupy a qualifying home as your principal residence within one year after buying or building it.
Unlike the Home Buyers Plan, which is still available in addition to the FHSA, qualifying withdrawals from a FHSA do not need to be repaid.
Please contact your SLF contact if you have any questions.