What is the First Home Savings Account (FHSA) in Canada?

What is Canada's FHSA and How Will It Affect First-Time Homebuyers?

Canada’s federal government just introduced a new investment account to help first-time homebuyers save for their first property. Starting April 1st, 2023, you can open up a First Home Savings Account (FHSA) at your local bank and invest annually to help save for the down payment required for your first home purchase.

The new FHSA account presents an incredible opportunity for first-time home buyers. However, the Canadian public has many questions about it, such as:

1. What is a First Home Savings Account?
2. Who is eligible for an FHSA?
3. How can you withdraw from your FHSA?

As a top-producing team with RE/MAX House of Real Estate, we thought it be best to cover these in detail together so you can take full advantage of this incredible opportunity! Also see:

• 10 Common Mistakes Made by First-Time Home Buyers
• 7 Crucial Steps Before Buying Your First Home
• 7 Reasons Why Owning a Home is Better than Renting

Q1. What is a First Home Savings Account?

The First Home Savings Account allows first-time home buyers to save for their down payment without being burdened by taxes.

The FHSA is a hybrid of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). Any contributions made to the account are tax-deductible, like in an RRSP, and any withdrawals made are tax-free, like in a TFSA.

Unlike other government programs such as the Home Buyers Plan, the money contributed to this account does not need to be repaid at all!

Q2. Who is Eligible for a FHSA Account?

To be eligible to open a First Home Savings account, you need to be:

1. A resident of Canada
2. 18 years of age or older
3. A first-time home buyer

But who qualifies as a first-time home buyer?

You are considered to be a first-time home buyer if, at any time in the calendar year before the account is opened or at any time in the preceding four calendar years, you did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that either:

* you owned or jointly owned

OR

* your spouse or common-law partner (at the time the account is opened) owned or jointly owned

After you’ve opened the account, it is allowed to remain open and you can contribute to it until December 31st of the year in which one of the following three events occurs:

1. The 15th anniversary since opening your FHSA
2. You turn 71 years of age
3. The year following your first qualifying withdrawal from your FHSA to purchase your first home

You can contribute up to $8,000 annually up to a maximum of $40,000. Just like an RRSP or TFSA, you can invest in stocks, bonds, GICs, mutual funds, etc. and have your money grow tax free!

Like an RRSP, contributions made to the account are tax deductible for that particular tax year. Any unused contribution room can carry forward to the next year up to a maximum of $8,000.

Q3. How to Withdraw from your FHSA?

The government of Canada has made it clear that this account is intended for first-time home buyers. Therefore, to withdraw from the account tax-free you must meet the following criteria:

1. Be a first-time home buyer and resident of Canada at the time of withdrawal
2. Have a written agreement to purchase a home in Canada before October 1st of the following year after the withdrawal
3. Claim the property as your primary residence and intend to live in the unit within one year of buying

If you do not meet the above criteria when withdrawing from the account, you could be subject to additional taxation. However, you could also transfer it to your RRSP or Registered Retirement Income Fund (RRIF), subject to applicable tax rules.

These rules vary depending on your scenario. It would be best to talk to your tax advisor to gain clarity on what options you’d have!

Calgary First-Time Home Buyer? Contact Us!

The new First Home Savings Account presents a fantastic opportunity to help first-time home buyers enter the real estate market. I’d highly encourage anyone who is eligible to take advantage of this program!

Don’t hesitate to contact us anytime you have any questions about the program or would like to discuss what options you have as a first-time home buyer. I’m here to help you achieve your real estate goals on your timeline and at your pace!