What is the FHSA?
The First Home Savings Account (FHSA) is a tax-advantaged savings account designed to help first-time homebuyers save for a down payment on their first home.
Key Benefits:
- Tax-Free Growth: Investments in the FHSA grow tax-free, just like a TFSA.
- Tax-Deductible Contributions: Similar to an RRSP, your contributions reduce your taxable income.
- No Repayment Required: Unlike the RRSP Home Buyers’ Plan (HBP), withdrawals from an FHSA do not need to be repaid.
- Combine with Other Programs: You can use the FHSA alongside the HBP for additional savings.
- Flexibility: If you don’t buy a home, you can transfer funds to your RRSP or RRIF without penalty.
Who is Eligible?
- Canadian residents aged 18-71.
- First-time home buyers (haven’t owned a home where they lived in the current or previous four calendar years).
Contribution Rules
- Annual contribution limit: $8,000
- Lifetime contribution limit: $40,000
- Unused contribution room carries forward (up to $8,000 per year)
Withdrawal Rules:
- Qualifying withdrawals for a home purchase are tax-free.
- Funds must be used to buy a qualifying home within 15 years of opening the account.
- If unused, funds can be transferred to an RRSP or RRIF without affecting contribution limits.
How it Works:
- Open an FHSA with a bank or financial institution.
- Contribute up to $8,000 per year (get a tax deduction!).
- Invest the funds to grow your savings tax-free.
- Withdraw tax-free when purchasing a home.
Example Savings Scenario:
If you contribute $8,000 per year for five years and invest it with a 5% annual return, you could have over $45,000 for your first home!
Why Use the FHSA?
- Helps maximize tax advantages for first-time home buyers.
- Offers flexibility to transfer funds if home purchase plans change.
- Can be used alongside other savings programs for bigger benefits.