Did you know there's a cool new way to help you save for your first home? It can be tough to juggle rent and other expenses while trying to put money aside for a down payment. But don't worry, we’ve got your back with a new government program that came into effect on April 1, 2023.
It's called the fax-free First Home Savings Account (FHSA), and here's why it's awesome:
How it works
- You get tax deductions on the money you put in.
- Any growth your account sees? Also tax-free!
- And when you're ready to withdraw for your first home purchase? Yep, you guessed it, tax-free!
As the FHSA is a registered savings plan, there are a few rules you should know. You need to be living in Canada and be at least 18 years old (or the age of majority in your province). You also can't own a house already, or have owned one in the last four years. And once you use the account for your first home, that's it - no more tax-free withdrawals for future homes.
You can put in up to $40,000 over your lifetime, but there's a yearly limit of $8,000. If you don't use up all your room in one year, don't worry, you can carry it over to the next year.
Another great thing is that you can transfer funds from your RRSP to your FHSA without paying any taxes. But keep in mind, this won't give you any extra RRSP contribution room.Tax-free treatment
When it comes to claiming your tax deductions, there's a bit of a difference compared to RRSPs. Your FHSA contributions are only deductible in the same calendar year they're made. And once you've bought your first home with the account, there are no more deductions for any more contributions.
Just like with your RRSP and TFSA, any money you make from investments in your FHSA won't be taxed. But with the FHSA, when you're ready to buy your first home, you can withdraw the money tax-free!
You'll have to close all your FHSAs by the end of the next year, and any money left in your account will be treated as income for that year, and you'll need to pay taxes on it. But you can defer this by transferring it into an RRSP.Double down on your downpayment
You and your partner can each have an FHSA to contribute to your downpayment – as long as you’re both first-time home buyers. Oh, and if you're also using the RRSP home buyers' plan (HBP), good news! You can use both that and your FHSA for the same home (and so can your partner).It's a bit complex, so it's a good idea to chat with your advisor about how to use the FHSA as your first step for your first home! Talk to us today.