Everything you need to know about the First Home Savings Account (FHSA)

May 6, 2022

It’s never been more challenging to buy a home in Canada, and first-time home buyers face a variety of obstacles including the cost of housing, highly competitive markets that are ripe with bidding wars, and saving up enough money for a down payment (particularly if you’re trying to put down 20% or more in order to avoid paying mortgage insurance). A well thought out budget and the guidance of an experienced financial advisor can help you get ahead, but no personal budget can solve a housing crisis.

Leaders from various political parties in Canada have proposed initiatives that would alleviate some of these challenges, and the recent federal budget proposal included a particularly interesting item from the current Liberal government: the introduction of a new registered account called the First Home Savings Account (FHSA). 

Here’s what you need to know about this proposed savings vehicle and how it could support Canadians as they enter or move up in the housing market.

What is the FHSA?

The FHSA is an initiative that was proposed in the 2022 federal budget and is expected to become available to Canadians in 2023. It’s designed to provide first-time home buyers with a savings vehicle that combines the benefits of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP). The FHSA will allow individuals to contribute up to $8,000 annually with a total contribution limit of $40,000. Unlike a TFSA or RRSP, you cannot carry over unused balance—meaning, if you only contribute $5,000 one year, your contribution limit will remain $8,000 the following year rather than increasing.

Like a TFSA, Canadians will not pay taxes on capital gains or interest earned in the FHSA account—and like an RRSP, the amount you contribute each year will lower your taxable income by an equal amount. Once you’ve withdrawn funds from the FHSA to purchase your first home, you have one year to close the account.

Once a FHSA account is opened, you have up to 15 years to use it. The First Home Savings Account can only be used one time in each Canadian’s lifetime and only on their first home purchase. If plans change, the funds invested in a FHSA can be transferred to an RRSP or RRIF without financial penalty or impacting RRSP contribution room. If you withdraw funds for reasons unrelated to your first home purchase, penalties will apply.

How is it different from existing options?

Many first-time home buyers in Canada withdraw funds from an RRSP under the Home Buyers Plan (HBP). While there is no penalty for withdrawing funds from your RRSP to buy a home if you meet the criteria, there is an obligation to repay those funds in full within the next 15 years. A failure to complete repayment within that 15 year period will result in the balance owing being added to your taxable income. Unlike the HBP, there is no obligation to repay funds withdrawn from your FHSA account if used to purchase your first home. The Home Buyers Plan will continue to be available to Canadians but cannot be used in conjunction with the new FHSA offering—you’ll have to choose one or the other.

Contact us to discuss your financial future

Coastal Community Private Wealth Group is here to support our clients and their families throughout all stages of life, including their first experience with home ownership. We will provide updates on the First Home Savings Plan as further details become available. If you have any questions or would like to discuss other elements of your financial health, please contact us. We’d be happy to help you reach your goals.

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