This article provides a detailed explanation of the First Home Savings Account (FHSA), a new Canadian savings plan designed to help individuals purchase their first home. It covers eligibility criteria, contribution limits, tax benefits, investment options, and strategic planning considerations for maximizing the FHSA's potential.
Over the past couple of years, we have opened many First Home Savings Accounts for individuals who are looking to purchase a first home. With the introduction of the FHSA , we are seeing even more advanced planning for one of life’s biggest purchases.
Housing affordability is becoming more and more of a concern. Coming up with the 20 per cent down payment all at once can be a far greater financial hurdle than funding education costs.In our opinion, every person who is serious about purchasing their first home should learn about the FHSA. To give a brief overview of the criteria:• You can’t own a home at any time in the year the account is opened or during the previous four calendar years.
If taxable income is not high, some strategy will still need to be factored in when making FHSA contributions. Unlike a RRSP, contributions you make within the first 60 days of a subsequent year cannot be deducted against your income in the previous tax year, as FHSA contributions are deductible on a calendar year basis.
You may open multiple FHSAs, but the total amount you can contribute to all of your FHSA’s cannot be more than your FHSA contribution room for the year. To ensure you do not overcontribute to your FHSA, you may find the details about your FHSA contribution room on your Canada Revenue Agency notice of assessment or reassessment.Funds withdrawn to make a qualifying home purchase are not subject to tax if certain conditions are met. First, you must be a first-time home buyer at the time of withdrawal.
Any funds not used toward a home purchase can be transferred to a RRSP or Registered Retirement Income Fund penalty-free and tax-deferred. These transfers will not affect your RRSP contribution room, nor will they reinstate your $40,000 FHSA lifetime contribution limit. Funds transferred to a RRSP or RRIF become subject to the rules applicable to those plans. Funds can also be withdrawn from a FHSA on a taxable basis if not required for a first home purchase.
A FHSA must be wound up by Dec. 31 of the year an individual turns 71. Working backward, a person who is 56 years old could start a FHSA and get the full 15 years deferral provided they purchased a qualifying home at age 71. If a FHSA is opened after the age of 56, then the maximum time frame the account can be opened is limited to age 71.There are many situations where a person may have owned a home previously but currently does not.
FIRST HOME SAVINGS ACCOUNT FHSA HOUSING AFFORDABILITY TAX BENEFITS INVESTMENT STRATEGIES
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