What is a First Home Savings Account (FHSA) and who should consider it’s benefits?
Think of the FHSA as a better version of the current RRSP for first-time home buyers, but more geared for longer term savings. It’s essentially another vehicle for Buyers to save for their first home, and shares similar qualities with both a RRSP and TFSA.
What are the benefits?
- Same benefit of an RRSP as the amount contributed for the year can be claimed as a deduction against taxable income. For example, a Buyer might get back $2000 on their tax return if they contribute $8000. Actual savings will vary by a Buyer’s personal tax rate.
- Buyers can contribute up to $8000 per year, with a lifetime contribution limit of $40,000.
- Once the FHSA is opened, a person can carry forward unused contributions. For example, if an individual only contributed $3000 in 2023, you would be able to save $11,000 in 2024.
- Can invest in mutual funds, exchange traded funds, bonds, GIC’s, etc… Any income gained (or lost), can compound in the FHSA on a tax-free basis similar to a TFSA.
- A Buyer can have both a FHSA and still use RRSP’s.
Any interesting fine print?
- Need to be 18 to start, and no older than 72.
- Buyer has 15 years to use it. If they have not purchased a home after 15 years, it gets rolled into a RRSP tax free.
Where can a Buyer set this up?
- Any bank or financial planner will have products available at some point this year.
What is the difference between this and the RRSP Home Buyers Plan (HSB)?
- With the RRSP’s an individual needs to pay back the amount withdrawn within 15 years. You do not have to with the FHSA.
- $8000 limit vs whatever RRSP contribution room an individual has.
- $40,000 FHSA limit, vs $35,000 RRSP
Who should consider it’s benefits?
- Buyers that are still a few years away from purchasing and/or Parents of older children who plan on entering the market at some point.
*Note that in true government program fashion, I haven’t seen a bank or financial institution ready to go for April 1st, as scheduled. Most will be launching the ability to set up a FHSA in the next few months or later on in the year.
Any questions? Please give me a call or email and I would be happy to help in any way I can.