Everything You Need to Know About the Tax-Free First Home Savings Account
Saving for a home has become increasingly difficult over the last decade. That’s why the federal government has introduced the Tax-Free First Home Savings Account (FHSA). Sitting in between a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA), this new plan is designed to help first-time homebuyers save for a down payment faster.
WHAT IS THE TAX-FREE FIRST HOME SAVINGS ACCOUNT?
The FHSA allows prospective homebuyers to set aside up to $40,0001 for a down payment tax-free.
Individuals can contribute up to $8,000 per year into the account—and, like an RRSP, that money is tax-deductible. At the same time, you can invest those savings, allowing your down payment to grow faster. When you ultimately withdraw the funds in your FHSA to make your first home purchase, you won’t pay taxes on either the principal investments or on their growth—similar to a TFSA2.
You have 15 years to put your FHSA savings towards a home purchase (or until December 31 of the year you turn 71, whichever comes first). If you don’t use the funds in that time, you can transfer them to an RRSP without paying taxes.
WHO’S ELIGIBLE?
This plan is only available to first-time homebuyers, defined as individuals who don’t own a home they occupy as their principal residence in the year the account is opened or any of the previous four calendar years. Beyond that, you must:
- Be a resident of Canada
- Be at least 18 years old (or the age of majority in your region)
How Does it Compare to a TFSA and RRSP?
| First Home Savings Account (FHSA) | Tax-Free Savings Account (TFSA) | Registered Retirement Savings Plan (RRSP) - Home Buyers' Plan | |
|---|---|---|---|
| Qualifications |
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| Eligible investments | Stocks, bonds, mutual funds, ETFs guaranteed investment certificates | Stocks, bonds, mutual funds, ETFs guaranteed investment certificates | Stocks, bonds, mutual funds, ETFs guaranteed investment certificates |
| Are contributions tax deductible? | Yes | No | Generally, yes, provided the contributions are in the RRSP for at least 90 days |
| Are withdrawals taxable? | Generally no, unless used for purposes other than to buy a first home | No | No, if purchasing a home and withdrawal is $35,000 or less |
| What is the maximum contribution limit? |
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WHICH INVESTMENTS QUALIFY?
Under an FHSA, taxpayers can hold a range of investments, including:
- Mutual funds and ETFs
- Publicly traded securities
- Government and corporate bonds
- Guaranteed investment certificates
The account holder must deal at arm’s length with any investment, and certain assets are exempt (e.g., land, shares of private corporations and general partnership units).
CI Direct Investing expects to offer FHSA accounts later in 2023. If you would like to be notified once the account is available, please send your request by email to info@cidirectinvesting.com.
1 Lifetime limit, per adult;
2 U.S. taxation may apply where the FHSA holder is a U.S. resident, citizen or green card holder;
3 Generally, neither you nor a spouse owned a home that you occupied as your principal residence in the year of withdrawal or prior four years.