The First Home Savings Account
The First Home Savings Account (FHSA) is a new registered savings plan that aims to help Canadians save for their first home. The FHSA offers prospective first-time home buyers the ability to contribute up to $40,000 tax free. Contributions to a FHSA are tax-deductible, like an RRSP. Like a TFSA, the gains inside a FHSA when withdrawn for the purchase of a first home are tax-free.
To be eligible to open a FHSA, you must be an individual resident of Canada, at least 18 years of age, and not turning 72 or older in the current year. You must be a first-time home buyer, meaning you, or your spouse/common law partner, did not own a qualifying home that you lived in as your principal residence at any part of the current or preceding four calendar years.
Contributions and Deductions
There is a lifetime contribution limit of $40,000 and an annual contribution limit of $8,000 in any year, including 2023.
You can carry forward $8,000 of your unused annual contribution amount to use in a later year (subject to the lifetime contribution limit) For example, if you open a FHSA in 2023 and contribute $5,000 you can then contribute up to $11,000 in 2023. Carry forward amounts do not start accumulating until after a FHSA is opened.
It Is possible to have more than one FHSA, however total contributions are still subject to the annual and lifetime limits set by CRA.
Annual contribution limits apply to contributions made within the calendar year. It is not like a RRSP in which the first 60 days of the next calendar year can be attributed to the previous tax year. FHSA can be claimed as a deduction against all sources of taxable income, therefore reducing your taxes payable.
If you contribute to your FHSA, you do not have to claim the deduction for that year. Like RRSP deductions you will be able to carry forward un-deducted contributions indefinitely.
Like with other registered accounts, a tax on overcontributions applies to the FHSA for each month, or part month the account exceeds the limit. A 1% tax applies.
Like those held by RRSPs and TFSAs; mutual funds, exchange traded funds (ETFs), publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs) are all eligible options.
Withdrawals and Transfers
Qualifying withdrawals to buy a first-time home are tax free. To qualify the withdrawal must meet these conditions:
- You must be a resident of Canada from the time of the withdrawal to the acquisition of the property.
- You must have a written agreement to buy or build a qualifying home before October 1 of the year following the year of withdrawal and intend to occupy the home as a principial residence within one year after buying or building.
- You can request a withdrawal within 30 days of moving into a qualifying home.
Funds left over after making a qualifying withdrawal can be transferred to another FHSA or RRSP/RRIF, on a tax-free basis, before the end of the year following the year of withdrawal. Transfers do not reduce or impact your available RRSP contribution room. Once transferred the funds become subject to the rules of that applicable account.
Withdrawals and transfers do not replenish FHSA contribution limits.
Non-qualifying withdrawals will be included in your income for the year withdrawn and taxes will be withheld.
Comparing FHSA and the Home Buyers’ Plan (HBP)
Both FHSA and HBP withdrawals can be made for the same qualifying home purchase.
HBP withdrawals are borrowed from your RRSP (interest-free) and must be paid back within 15 years. FHSA are tax free and do not need to be repaid.
If you do not buy a home with the 15-year FHSA limit, the funds can be transferred to your RRSP tax free before the end of the 15th year, where they can later be withdrawn under a HBP.
Because a transfer of funds from FHSA to an RRSP will not reduce your available RRSP contribution room, you can effectively create more RRSP room by starting to contribute to your FHSA.
Closing a FHSA
The FHSA must be closed by December 31 of the year in whichever comes first:
- The year you turn age 71.
- The 15ths anniversary of first opening the account.
Only the FHSA holder can claim a deduction for contributions made to their own FHSA. You cannot contribute to your spouse’s and claim a deduction; however, you can gift funds to your spouse so that they can claim a deduction on their own FHSA contribution. Normally, if you gift funds to your spouse attribution rules apply, however there is an exception that applies to the FHSA. Attribution rules will not apply to income earned and capital gains generated within a FHSA derived from those gifted contributions. Similarly, no attribution arises if you give cash to an adult child to contribute to their FHSA.
In the event of a marriage or common-law breakdown, you may transfer funds from your FHSA to your former spouses FHSA, RRSP OR RRIF. This will not reinstate FHSA contribution room for you and would not use any contribution room of your former spouse. If your spouse has overcontributed, the amount eligible for transfer will be reduced.
Treatment on Death
You may designate your spouse as a successor account holder. The surviving spouse would become the new holder immediately on death, so long as they met eligibility criteria to open a FHSA. Inheriting a FHSA in this way would not impact their contribution limits and would assume the surviving spouse’s closure deadlines. If the surviving spouse is not eligible to open a FHSA, amounts can be transferred on a tax-deferred basis to their RRSP or RRIF or be withdrawn on a taxable basis.
If the beneficiary is anyone other than a spouse, the funds will need to be withdrawn immediately following death and paid to the beneficiary. Amounts paid will be included in the beneficiary’s income and subject to withholding tax.
You can continue to make contributions to an existing FHSA after moving from Canada but will not be able to make a qualifying withdrawal as a non-resident. Non-qualifying withdrawals as a non-resident are subject to holding tax.
Find out more at the Government of Canada's website or contact Statera Financial Planners to see if a FHSA is right for you!