[Fall 2023 GPS] Guide To The New FHSA

New Kid on the Block: Tax-Free First Home Savings Account (FHSA)

The Tax-Free First Home Savings Account (FHSA) is a registered savings plan aimed at assisting Canadians in their journey toward homeownership. In this guide, we will explore the key features, eligibility criteria, contributions, withdrawals, and additional considerations associated with the FHSA.

Eligibility Criteria: To be eligible for the FHSA, individuals must meet the following criteria:

• Reside in Canada.
• Be age of majority, either 18 or 19, depending on the province, up to 71 years old.
• First-time home buyer, with neither the account holder nor their current spouse or common-law partner having owned a home as their principal place of residence in the current calendar year and the four preceding calendar years.

 

Contributions & Withdrawals: Contributions to the FHSA are tax-deductible, except for transfers from RRSP, which cannot be claimed as a deduction. Key points regarding contributions and withdrawals include:

• Annual contribution limit of $8,000 with a lifetime cap of $40,000.
• Unused contribution room can be carried forward from the year the account was opened, up to a maximum of $8,000.
• There is no minimum number of days that contributions or transfers to your FHSAs must stay in your FHSAs before you can use them for a qualifying withdrawal.
• Qualifying withdrawals are tax-free, including investment income, but are also strictly for purchasing a first home.

Closing an FHSA:

The FHSA has to be closed on December 31^st of the year in which the earliest of the following occurs:

• The year following the year of the first qualifying withdrawal.
• The 15^th anniversary of opening the account.
• The account holder turns 71 years of age.

If when closing the account, there are funds left that are not eligible for qualifying withdrawals, then these funds can be:

• Direct transferred to an RRSP or RRIF, without impacting the unused RRSP deduction room.
• Withdrawn, and included as income on the tax return.

 

FHSA & Home Buyers' Plan (HBP)

A couple can use both the FHSA and the Home Buyers' Plan (HBP) for a combined maximum of $150,000 toward their first home purchase. The HBP allows tax-free withdrawals from an RRSP, with a $35,000 withdrawal limit, repayable within 15 years. The FHSA has no such repayment requirement.

 

Parents & Spouses

Spouses can not contribute to each other's FHSA. Parents can gift funds to adult children for FHSA contributions, with adult children enjoying tax deductions and tax-free qualifying withdrawals.

 

FHSA & Death

Individuals can name their spouse as the successor holder of their FHSA, (like a TFSA) maintaining tax-free status after the account holder's death. The transfer does not affect the spouse's contribution limits.

In cases where the beneficiary is not the surviving spouse, the funds must be withdrawn, with the beneficiary liable for taxes.

 

Conclusion

The FHSA presents a unique opportunity for Canadians to save for their first home while benefiting from tax advantages. Understanding the eligibility criteria, contribution limits, and withdrawal conditions will empower individuals to make informed decisions on their path to homeownership. If we haven’t already, we’ll be reaching out soon if you’re eligible and can benefit from opening an FHSA.