Buying a home is a major milestone, but the process can be intimidating, especially when saving for a down payment. To support Canadians in achieving their homeownership dreams, the Government of Canada introduced the First Home Savings Account (FHSA). Let’s explore all the essential details about Canada’s FHSA, including its purpose, benefits, eligibility criteria, and how it can help individuals save for their first home.
What is the First Home Savings Account (FHSA)?
The First Home Savings Account (FHSA), launched on April 1, 2023, is a specialized savings account designed to help Canadians save for the purchase of their first home. It is a government-backed initiative that aims to make homeownership more accessible and affordable. The FHSA provides tax advantages to individuals who contribute towards their down payment, allowing them to save money more efficiently.
Who is eligible for the First Home Savings Account?
To be eligible for a First Home Savings Account, individuals must meet all the following criteria at the time the account is open:
- You must be at least 18 years of age to open and contribute to an FHSA
- You’re a resident of Canada
- You (or your spouse) can’t own a home in which you lived, at any time in the year the account is opened or during the past 4 calendar year
Contributing to your FHSA
Once you have opened a First Home Savings Account, you may contribute up to the lifetime limit of $40,000. However, the annual contribution limit is $8,000. Any unused contribution room can be carried forward, but the maximum amount for a subsequent year is $8,000.
It is important to note that an FHSA is not an extension of your tax-free savings account (TFSA). They are separate accounts each with its own contribution room.
Making Withdrawals from your FHSA
To qualify for a tax-free withdrawal (otherwise known as a “qualifying withdrawal”) from your FHSA, the following conditions must be met:
- You will occupy the new home as your primary residence within one year of purchase – along with the proper documentation
- You’re a first-time home buyer upon withdrawal or within 30 days of moving into your new home
- You have a written agreement to buy/build a qualifying home before October 1st of the year following the withdrawal
As long as you meet these conditions, you can make tax-free withdrawals from your FHSA. But remember, you will have to close your account by the end of the year following your first qualifying withdrawal.
If you don’t meet the conditions, you can still make “non-qualifying” withdrawals subject to withholding tax and being included in your taxable income.
Canada’s First Home Savings Account (FHSA) is a valuable tool for individuals looking to save for their first home. By providing tax advantages on contributions, tax-free growth, and withdrawal flexibility, the FHSA makes the journey to homeownership more accessible and affordable. If you are a first-time homebuyer, you may want to consider exploring the FHSA to help accelerate your savings.
Remember to consult with a financial advisor or a licensed mortgage professional to understand the specifics and how the FHSA can benefit your unique financial situation.
