The tax-free First Home Savings Account (FHSA) is a new registered savings account announced by the government of Canada last year to help qualified Canadians save for a down payment for their first home.
- A Canadian resident
- 18 years or older
- A first-time home buyer
What is an FHSA?
Discover the First Home Savings Account and how it can help you save for a future down payment for a home. The FHSA combines the best benefits of both an RRSP and a TFSA to help you save a down payment for your home. To start, contributions to the FHSA are tax deductible when you file your taxes. This is similar to an RRSP where contributions can be used to lower your net income. Just like an RRSP and TFSA, an FHSA is a registered savings account that can hold multiple investment securities. This includes equity-based investments like stocks, fixed-income investments (bonds and GICs), and other investments such as options, ETFs, and precious metals.
FHSA Contributions
The FHSA will allow you to contribute an annual tax-deductible amount of up to $8,000 with a lifetime contribution maximum of $40,000 per person. You can also carry forward any unused contribution in the subsequent year up to a maximum of $8,000 per year on top of the contribution limit of $8,000. Note that carry-forward amounts begin to accumulate only after you open your FHSA. This may be an option to consider if you’re planning to purchase a home in the future but not looking to contribute to the account immediately.
Over contribution:
If you over contribute, your over contribution amount is subject to a 1% tax on the highest excess amount for each month it is over the limit. This will continue to apply each month until the excess amount is removed from your FHSA, which stops accruing when:
- You withdraw the excess amount from your FHSA
- You receive a new contribution room, which happens January 1 of the following year
You can deduct from your income any over-contributed amount in the year it is no longer considered an over-contribution, but not the year before that.
Withdrawals from an FHSA
For you to make a qualifying withdrawal from your FHSA, the following criteria must be met:
- You must be a first-time homebuyer at the time you make the withdrawal. This means that you cannot have owned a home, in any part of the calendar year before the withdrawal or in the past four calendar years. There’s an exception that allows you to make qualifying withdrawals if you withdraw within 30 days of moving into your home.
- You need a written agreement that you’re purchasing a property before October 1 of the year following your withdrawal.
- You intend to live in the qualifying home (a housing unit located in Canada) as your principal residence for one year after purchasing or building it.
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