The Liberal budget has recently just outlined the Tax-Free First Home Savings Account (FHSA). This new savings account, eligible for new homebuyers, was unveiled as part of a $10-billion action plan to create more opportunities for Canadian homebuyers. The aim of this program is to create affordability of home ownership as the real estate market continues to climb and many struggle to secure down payments. 

 (FHSA)

Beginning in 2023, any Canadian resident 18 years of age who is a first-time homebuyer will be eligible to open up a Tax-Free First Home Saving Account. Any investment within the account along with the withdrawal for a home purchase would be tax-free. 

This savings account would be similar and mirror an RRSP in many ways. You are able to have both a RRSP and an FHSA at the same time and are able to transfer from your RRSP to you FHSA. The only thing is you must adhere to the rules of the FHSA and stick within contribution limits. Unlike the Home Buyers’ Plan (HPB), you will not have to pay back the FHSA once it has been withdrawn. The only time you would be taxed is if the money was withdrawn for use other than the purchase of a first home. That money would then be added on to your taxable income for that year. 

As a first-time homebuyer you can only have a FHSA or a HPB. When you are in the market to buy as a first-time homebuyer take some time to review which plan will better suit your needs. 

How much can you contribute to it?

You will be able to contribute $8000 annually with a maximum lifetime total of $40,000 per account. Unused annual contributions will not roll into the next year, and similar to an RRSP, contributions are also tax-deductible. Individual accounts may be combined if investing in real estate together.

Once opened, the account will be able to remain active for 15 years. If after 15 years, the money is not withdrawn, the savings will be transferred to an RRSP, RRIF, or be taxed upon withdrawal. 

Why FHSA?

While not the only option, a FHSA may be a suitable option for first-time home buyers. 

The enrollment of this new Tax-Free First Home Savings Account is to help remove barriers Canadian’s face when buying their first home. The federal budget has also proposed doubling the First-time Home Buyers’ Tax Credit to $10,000 in addition to the FHSA to combat these issues.