The First Home Savings Account (FHSA) is a new savings account launched in April 2023 designed for first-time home buyers in Canada. It is often compared to The Home Buyers’ Plan (HBP) since both accounts serve the same purpose of helping Canadians save for their first home purchase. However, there are some key differences between the two programs that make the FHSA an attractive option for many buyers.
The main benefit of the FHSA is that it offers tax-free savings on the money saved in the account day one as well as when you sell the property without having the pay back the funds as is the case with the HBP. In addition, any interest earned on the account is not subject to income tax, making it a great way to save for a down payment on a home. This makes it a more flexible option for buyers who may need to access future savings for other purposes.
The FHSA allows buyers to save up to $8,000 per year, with a maximum contribution limit of $40,000. Any unused contribution room can be carried over the the subsequent year. This allows buyers to save a significant amount of money over time, and can potentially use these savings to purchase a home in the future. The account can also be opened by anyone, regardless of whether or not they have a partner or spouse.
In order to be eligible for the FHSA, buyers must be at least 18 years of age and have a valid social insurance number. They must also be considered a Canadian resident for tax purposes and be considered a “first time homebuyer”.
It is important to note that a “first time homebuyer” is defined as a buyer that did not, at any time in the current calendar year before the account is opened or at any time in the preceding four calendar years, live in a qualifying home. This means that individuals who have owned a home in the past (as long as it was more than 4 years ago) can still qualify. If you have any questions about your qualification, please reach out to us for clarification.
Generally, you can transfer funds from your RRSP’s to your first home savings accounts (FHSAs) without any immediate tax consequences, as long as it is a direct transfer, and does not exceed your unused FHSA participation room at the time of the transfer.
One important thing to note about the FHSA is that the savings in the account cannot be used for any purpose other than purchasing a home. If buyers withdraw funds from the account for any other reason, they will be subject to a penalty tax. Additionally, the account cannot be transferred or sold to another person.
Overall, the FHSA is a great option for first-time home buyers who are looking to save money for a down payment on a home. It offers tax-free savings, flexible withdrawal options, and a generous contribution limit. While it may not be the right option for everyone, it is definitely worth considering for those who are eligible and looking to save for their first home purchase.
In conclusion, the FHSA is a great financial tool for first-time home buyers who are looking to save for their dream home. With its tax-free savings and flexible withdrawal.