The First Home Savings Account
The First Home Savings Account, or FHSA. Today, we'll go over this new savings account designed to help you buy your first home. So, let's dive in!
The First Home Savings Account takes pieces from the Tax-Free Savings account as well as form the Registered Retirement Savings Plan in an attempt to aid people in making their first home purchase.
The Details
So, the maximum amount that you’re able to contribute per year is $8,000, with a lifetime maximum of $40,000. These contributions are tax-deductible, and the withdrawals are tax-free. It's truly a strong attempt to make it easier to save up to buy a home.
The tax deductible is similar to how your RRSP works. And the tax free withdrawls is similar to how your TFSA works.
It’s relatively simple to open your FHSA. To open your account, you must be between the ages of 18 and 71, a current tax resident of Canada, you must not have lived in a home that you or your partner owned in the current calendar year or any of the previous four calendar years.
How does it compare with a TFSA or an RRSP?
Now, you might be wondering – how does the FHSA stack up against the RRSP and TFSA? It's not a replacement but a complement, offering more contribution room, more tax savings, and more opportunities for investment growth.
And you must be opening the account to save for buying a qualifying home, which is defined as a housing unit (generally includes a house or a condominium) located in Canada.
A share in a co-operative housing corporation that entitles the taxpayer to possess and have an equity interest in a housing unit located in Canada, would also qualify. However, a share that only provides the right to tenancy in the housing unit would not qualify.
As of April 1st, 2023, you could have opened your FHSA account. It took some time to get set up, but most of the major banks and investment firms are now set up for you to open an FHSA. We can help you set up an FHSA account if that’s what you’re looking for.
You can contribute the full $8,000 as soon as you open your account, and if you can't contribute right away, your unused contribution carries forward into the next year.
You can use the First Home Savings Account to invest in stocks, ETFs, and more just like a TFSA or RRSP. You can also contribute until you reach the lifetime limit or until 15 years have passed since you opened the account.
Your investments can continue to grow tax-free within the account like an RRSP, making the FHSA an ideal choice to avoid capital gains and/or income tax on your investments while saving for a home.
The account isn’t intended to replace your TFSA or RRSP, but it’s more made to be an additional account to allow you more contribution room, more tax savings, and more opportunities for investment growth.
So, your FHSA account expires 15 years after opening or when you turn 71 whichever comes first. But don't worry, if it expires before you buy a home, the funds can be transferred to your RRSP.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
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