Canadians will soon get a boost when it comes to saving for their first home. Starting in April of 2023, the Tax-Free First Home Savings Account (FHSA) will be available to those over the age of 18 who have dreams of owning a home. This account is part of a campaign promise by the Liberals in the last election. Here is a run down of what we know so far.
What You Need to Know
The FHSA will allow Canadians over the age of 18 to save up to $40,000. Eligible taxpayers can contribute up to $8000 a year to the account and this amount can be carried forward into future years if not used. These funds need to be used within 15 years of opening the account or before the age of 71 (whichever is earliest). For simplicities sake, the investments available in the FHSA will be the same as the TFSA. To open an account, you must be:
1) Canadian Resident
2) Over the age of 18
3) You can't own a home at any time in the year the account is opened or during the previous four calendar years.
The inner workings of the FHSA combines some of the best features of the Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). The contributions are tax deductible, and the money grows inside the account tax free. The qualifying withdrawals are non-taxable.
The FHSA is unique because funds must be used to purchase a home. Any funds that are not used to purchase a home can be transferred to an RRSP or RRIF account on a rollover basis, and the RRSP rules will apply going forward. It is important to note that transfers do not impact your RRSP contribution limits.
The Bottom Line
The government aims to make FHSAs available to individuals after March 2023; however, at the time this was written, the enabling legislation has not been enacted. The rules are still in draft and any decisions on how best to save for the purchase on a home should be delayed if possible until the final rules have been enacted.