The new First Home Savings Account (FHSA) is expected to be rolled out in 2023 and once it has launched, every prospective first-time homebuyer will want to open one. A truly revolutionary new account structure, the FHSA is a best-of-all-worlds mix between the RRSP, the TFSA, and the Home Buyers Plan (HBP) programs: never has an account allowed for tax-deductions on your contributions, and tax-free access upon withdrawal.
The FHSA’s full and complete details aren’t yet confirmed, but here is what we know so far:
- The lifetime limit on contributions will be $40,000, with an annual contribution limit of $8,000
- Age Limit: the FHSA must be opened before reaching 71 years of age, or can be open for 15 years
- Contributions: FHSA contributions made in a calendar year are deductible when filing that year’s tax return. There is no First 60-day contribution period. This is a small difference versus the RRSP structure.
- Tax Deduction: you can claim your tax deduction in the year you make your FHSA contribution, or carry contributions forward to deduct in future years. This is similar to the RRSP structure.
- Once you open the FHSA, you can carry forward unused contribution room (again, similar to the RRSP structure
- Redemptions from the FHSA to purchase your first home are tax-free and require no repayment (unlike the HBP program)
- Growth within the FHSA is tax-sheltered (like the RRSP & TFSA)
- If you decide to use FHSA money for anything other than a home purchase, you can transfer funds to an RRSP or RRIF without affecting your contribution room.
- You cannot combine the HBP and FHSA. Withdrawals from both the FHSA and HBP to buy the same property are not permitted. However, you can transfer RRSP funds to the FHSA at any time to avoid this issue.
Combining all the “pros” and none of the “cons” of the RRSP, TFSA, and HBP effectively creates the first truly tax-free account; you get the tax benefit on contributions, enjoy tax-sheltered growth while invested, and you get the tax benefit on redemptions (no tax or HBP repayment obligation) for your first home purchase.
If you have any questions about this new savings vehicle, how it works, and if it applies to you. We would be happy to walk you through how to take advantage of this program.