By now, you’ve probably read about the new FHSA program, introduced by the Federal government to help save for a first home purchase. Many people have thought of the immediate benefits; that is, utilizing the FHSA to help fund their own down payment. This makes sense of course. The FHSA, if used to fund a home purchase, is the first truly “tax free” account structure in Canada.
Contributions are tax-deductible (like the RRSP). Growth within the account is tax-sheltered (like the RRSP or TFSA). Redemptions made to fund a qualifying first home purchase are also tax-free and not subject to a repayment (like the TFSA). No tax payable throughout the life of the FHSA, literally: never has an account allowed for tax-deductions on your contributions, and tax-free access upon withdrawal.
The FHSA is also a great way to transfer wealth to the next generation in a tax-efficient manner. In BC, once your child is 19, they are eligible to open an FHSA. You can contribute $8,000 a year to a maximum of $40,000 lifetime to your child’s FHSA via gifting. Like RRSPs, your child can deduct the contribution in the year it is made or carry forward the contribution to a year in which their income justifies the deduction.
The tax deduction generated (or carried forward) makes gifting to an FHSA more tax-efficient than gifting to a TFSA and without the repayment obligation of the RRSP; thus, a gifting strategy for a future first home purchase should prioritize the FHSA first, then the RRSP, and finally the TFSA.
Please contact our office with questions about gifting down payment funds to your child(ren). We’d be happy to discuss if the FHSA makes sense for you / your child(ren).