What is a First Home Savings Account (FHSA)?
A Tax-Free Savings Account for First-Time Home Buyers (FHSA) is an innovative type of account designed to help Canadian first-time home buyers save efficiently for their first home purchase.
The FHSA combines the advantages of Registered Retirement Savings Plans (RRSPs) in terms of the deductibility of contributions, and Tax-Free Savings Accounts (TFSAs) in terms of the absence of taxation on income generated and on qualified withdrawals.
The contributions to the account are fully deductible, while any income earned on the account remains tax-free. In addition, withdrawals from the account for the purchase of property are also tax-free.
How does the FHSA work ?
First-time homebuyers can contribute up to $8,000 per year to their FHSA, with a lifetime contribution limit of $40,000.
To accumulate the annual contribution limit of $8,000, you must open a FHSA account; otherwise, no contribution room is generated..
Who is eligible to the FHSA ?
- You must be a Canadian tax resident.
- You must be 18 years of age or older.
- You must be considered a first-time home buyer.
What should I know before opening a FHSA ?
- You can invest in the same types of assets within the FHSA as you would in an RRSP or TFSA.
- You are not required to deduct contributions to your FHSA and can carry them forward to future years.
- Each year the account is open, you’ll earn $8,000 in deferrable contribution room (up to a maximum of $40,000).
- The maximum total contribution is $40,000.
- Contributions to your account do not affect your TFSA or RRSP contribution limits.
- If you don’t use the FHSA funds to purchase a home, the funds will be subject to tax when distributed.
This article is intended as a brief summary of FHSA. If you wish to go further, you can consult us on a a lot of questions, for example :
What happens at 71 years old;
What happens if you decide to not purchase a house using this account?;
What if I only use a portion of the FHSA to purchase a property?
How long do I have to keep the contributions in the FHSA before buying the property?