First Home Savings (FHSA)
December 13, 2023
First Home Savings (FHSA)
What is a FHSA?
- A registered account to set aside a maximum of $40,000 for a home purchase.
Who can open a FHSA?
- At least 18 years of age
- A resident in Canada
- A First-time home buyer: Did not own a home in which they lived in in the current year when the account is opened or preceding 4 calendar years.
Contributions to a FHSA
- Available since April 1, 2023
- Contribution limits
- Annual contribution limit $8,000
- Lifetime contribution limit $40,000
- Can carry forward unused contribution room.
- There is a 1% tax on over contributions.
- Interest on borrowed funds to contribute to a FHSA is not tax deductible.
- Tax deductible in the year they are contributed but deduction can be carried forward indefinitely.
- One can transfer from an RRSP to a FHSA but this would not reinstate the RRSP contribution limit
- Caution as attribution rules still apply if spousal contributions to a RRSP in current or proceeding 2 years
Withdrawal from a FHSA
- Withdrawal to purchase a qualifying home is tax-fee including investment income.
- Non-qualifying withdrawals are included in income
- The individual intends to occupy the home as their principal residence within one year after buying or building qualifying home
- There is flexibility to withdraw the entire FHSA funds at once or in a series of draws
- To note – starting after April 1, 2023 an individual can make both a FHSA withdraw and a home buyers plan withdrawal for the same qualifying home purchase.
Closing or winding up FHSA
- The earliest of the year
- In which the 15th anniversary after opening a FHSA occurs
- In which the individual turns 71 years old
- Following the first qualifying withdrawal
- Savings not used to purchase a home can be transferred to a RRSP or RRIF
- Transfers would no reduce or be limited by an individual’s available RRSP contribution room.
- Individuals can also have the option to withdraw unused funds but such withdrawals are subject to tax.