Nicolas Godbout, fiscaliste et planificateur financier, M. Fisc., Pl. Fin

Federal Budget 2022 – New measure for first-time home buyers!

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The budget introduced a very advantageous new measure for first-time home buyers: the FHSA!

What is FHSA? Tax-Free First Home Savings Account (FHSA) is a great new tax tool that allows you to accumulate tax-sheltered funds to buy your first house. It is clearly better than the HBP (Home Buyers Plan).

First of all, contributions to the FHSA are tax deductible, like those to an RRSP, for example. There is therefore a tax saving when contributing. The sums invested are invested and generate a return, sheltered from tax like the RRSP or the TFSA. Upon withdrawal, the amounts are not taxable, like the HBP, but you do not have to repay the amounts as you would have to with the HBP! It really is the dream vehicle that combines all the advantages of RRSP, HBP and TFSA in a new vehicle.

But beware, not everyone can benefit from it, you have to qualify to open a FHSA. Only residents of Canada over the age of 18 who have not lived in a property they own in the year of withdrawal or in the previous four years can open this account. Basically, you must not already own one property (and live in it) in the last 5 years.

If you qualify, you will be able to deposit $8,000 per year starting in 2023, up to a cumulative lifetime maximum of $40,000. Unused contributions from one year will not be carried over to the following year. You can withdraw the amounts whenever you want, but the withdrawal will not be taxable only if the amounts are withdrawn when buying a first property.

What if you end up not buying a property? The rules allow you to transfer to an RRSP at any time without penalty. Note that if you do not buy a property within 15 years of opening the FHSA, you must transfer it to an RRSP or withdraw the fully taxable amounts.

And the HBP? The HBP remains in effect, but you will not be able to withdraw amounts from both the HBP and the FHSA during the purchase of the property, you will have to choose one of the two.

We will know a little more about the FHSA rules by 2023, the budget only outlining the main lines of the program. As soon as the government releases more information, we will relay it to you.

In summary, the FHSA is therefore an extremely powerful tool and several advanced plannings are possible. Consult our tax experts to put in place winning strategies that allow you to make the most of this new measure!