Buying a home is a significant milestone in one's life, and for many, it remains a distant dream due to financial constraints. However, governments around the world have introduced various schemes and incentives to make home ownership more accessible, and one such initiative is the First Home Savings Account (FHSA). Lets delve into the details of FHSA, exploring its purpose, benefits, eligibility criteria, and how it can help aspiring homeowners achieve their dreams.
Understanding First Home Savings Account
First Home Savings Accounts (FHSAs) are specialized savings accounts designed to assist individuals in saving for their first home combining the power of TFSA and RRSP. These accounts were introduced as a government initiative to encourage long-term savings for first-time home buyers. The funds deposited in an FHSA receive favorable tax treatment, providing an incentive to save more effectively means all the contributions are tax deducible and the withdrawals are tax-free
Who can open a First Home Savings Account?
To open an FHSA, you must be:
between the ages of 18 and 71
a current tax resident of Canada
Have not lived in a home that you or your partner owned in the current calendar year or any of the previous 4 calendar years
Be opening the account to save for buying a qualifying home in Canada
Benefits of FHSA
contributions to FHSA would be tax-deductible and can be deducted when you file your income tax (like RRSP)
withdrawals to buy a home would be non-taxable (like a TFSA).
annual contribution limit: $8,000 with $40,000 lifetime contribution limit
unused contributions can carry forward, with a maximum carry forward of $8,000
can be used to invest in stocks, ETF and much more like TFSA or RRSP
your savings or investments can grow tax-free while saving for a home.
an add-on to TFSA & RRSP
Alternatives to First Home Savings Account (FHSA)
While FHSAs can be a valuable tool for saving towards your first home, it's important to explore other options. Additionally, seeking advice from your licensed mortgage brokers can help you understand the best strategies to achieve your homeownership goals.
How is FHSA different from the Home Buyers’ Plan?
Although both the First Home Savings Account and the Home Buyers’ Plan (HBP) serve the same purpose of helping Canadian residents purchase their first home, the two differ in several ways. Let’s look at some of the differences:
FAQs
When can I Buy?
You have 15 years to buy a home from the time you open your FHSA else the funds can be transferred to an RRSP subject to taxes.
RRSP or FHSA, which is better?
You can still use the RRSP contribution for tax savings while using FHSA for savings your down payment.
Can I use both RRSP & FHSA?
Yes, you can save & use both accounts for down payment.
Can I open multiple FHSA accounts?
Yes but the maximum annual deposit limit will be $8000 only.
Can I open an FHSA if I previously owned a home?
As long as you or your spouse or common-law partner have not owned a home
in the previous 4 calendar years, then you can open and use a new FHSA.
Can I still make a Home Buyer’s Plan (HBP) withdrawal from an RRSP if I use an FHSA?
Yes. you still qualify for home buyers plan with your RRSP.
Can I only use the funds for the down payment?
You can withdraw as much as you want to cover down payment or closing cost or any associated expenses beyond your down payment.
First Home Savings Accounts (FHSAs) are a commendable initiative that aims to support individuals in their pursuit of homeownership. The money can be withdrawn tax-free if used towards the qualifying purchase or build of your first home.
Happy saving and best wishes on your journey towards owning your first home!
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