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Tax-Free First Home Savings Account (FHSA) – Everything you need to know

Dec 16, 2022 by System
In its latest budget, the federal government introduced a new savings vehicle for the purchase of a first home. Here are the broad lines of this new program.

 

UFile Blog -Tax-Free First Home Savings Account (FHSA)

What is it?

The First Home Savings Account (FHSA) is a new tax-sheltered registered account, similar to an RRSP and a TFSA, to help you save for the purchase of your first home.

Am I eligible?

You will be eligible if:

  • You’re at least 18 years old
  • You did NOT live in a home that you owned at any time in the year the account is opened or in the preceding 4 years

How much will I be allowed to contribute?

Your annual contribution limit will be $8,000 and your lifetime limit will be $40,000. Unlike an RRSP or a TFSA, the annual limit will not be cumulative, meaning that if you contribute less than $8,000 in one year, your limit will still be $8,000 the following year.

Will I get a tax deduction when I contribute?

Yes. Just like for your RRSP, contributions to your FHSA will be tax deductible.

Will my gains be sheltered within the account?

Yes, any gains earned within the FHSA will be exempt from tax.

What happens when I make withdrawals?

Amounts withdrawn from the FHSA will be non-taxable as long as you use them to buy your first home. Withdrawals made for any other purpose would be taxable.

You will only be able to make a withdrawal for a single property in your lifetime. Once you have made a qualifying withdrawal to buy your first home, you will be required to close the account, and you will not be able to open another FHSA.

Could I transfer funds from the FHSA to an RRSP or a TFSA?

You would be allowed to transfer funds held within your FHSA to an RRSP. This transfer would be tax-free, and it would not reduce your RRSP deduction limit. However, you would not be allowed to make transfers to a TFSA.

You would also be able to transfer funds from an RRSP to a FHSA. These transfers would be tax-free and subject to the contribution limits mentioned above.

What happens if I don’t buy a home and I don’t transfer the funds to an RRSP?

If you have not purchased your first home within 15 years of opening your FHSA, you will be required to transfer the funds to an RRSP and close the account.

Could I withdraw from both my RRSP under the Home Buyers’ Plan and the FHSA?

No. When you purchase your first home, you will have to choose between the Home Buyers’ Plan and the FHSA.

Will I be able to claim the Home Buyers’ Amount when I withdraw from the FHSA?

Yes, as long as you meet the conditions of the Home Buyers’ Amount.

When can I open an account?

You will be able to open an FHSA sometime in 2023.

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Gery VittoratosPresented by UFile's tax expert
Gerry Vittoratos
MTax

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