Future First Time Home Buyers Should  Register for Tax-Free First Home Savings Account (FHSA) by December 31

FRIDAY, NOVEMBER 17, 2023 

The FHSA was introduced early in 2023 and allows holders to save up to $40,000 tax-free over the lifetime of the account. Any potential first-time home buyers should be sure to register before December 31 because of the way the plan design permits carry over of unused room.  Even if the contributor doesn’t make a contribution in 2023 the $8,000 annual contribution limit carriers over meaning that $16,000 can be contributed in 2024.

To be eligible for the FHSA, the account holder must be a resident of Canada, at least 18 years of age and a first-time home buyer, defined as not having owned a home they lived in in the past calendar year or at any time in the four preceding years. The annual contribution limit will be capped at $8,000, and an individual may carry forward any unused portions of their contribution limit - for example, an individual who contributed $4,000 in 2023 will be eligible to contribute up to $12,000 in 2024. However, the maximum carry over from year to year is $8,000, making the maximum annual contribution $16,000.

The account combines the best attributes of RRSPs and TFSAs - similar to the Tax-Free Savings Account, you never have to pay taxes on the growth or capital in FHSA withdrawals, and similar to the RRSP you are entitled to a tax deduction. If, for example, the contributor earns $80,000 per year they would save will save 30% of the amount contributed of up to $8,000 from that year’s tax bill. The higher your tax bracket, the higher your tax saving - those in higher tax brackets can save up to 53%.

For parents supporting their children with first time home purchases, this is a great new way to contribute in a tax efficient manner.

Transfers will be allowable from the FHSA to another FHSA, an RRSP or an RRIF on a tax-free basis. Withdrawals from the account are allowed in conjunction with a first-time home purchase, and you must be a Canadian resident at the time of withdrawal.

If you have any questions please reach out to us.