Proposed in the 2022 Federal Budget and launched on April 1, 2023, the new First Home Savings Account (FHSA) registered plan allows first-time homebuyers to save up to $40,000 for the down payment on their home on a tax-free basis.
This is similar to a Tax-Free Savings Account (TFSA), and can then be withdrawn tax-free as long as the funds are used for a qualifying first-home purchase.
Even though the official launch is in April 2023, most banks will not be ready to offer this product until later in the year.
Who is eligible for the FHSA?
- Any resident of Canada who is at least 18 years old.
- Anyone who hasn’t owned a home or lived in a home owned by their spouse or common-law partner in the calendar year or four preceding calendar years.
How much can you contribute to your FHSA?
- You can contribute up to $8,000 per calendar year, up to a lifetime limit of $40,000.
- You can carry forward up to $8,000 in unused contributions in a calendar year to use in a later year.
What qualifies as a first home purchase?
- Funds withdrawn from the account are only tax-free if used for a qualifying first-home purchase. To qualify, the purchase must meet the following criteria:
- Be a first-time homebuyer and a resident of Canada at the time of the withdrawal and during the purchase of the qualifying home,
- Have a written agreement to buy or build a qualifying home located in Canada before October 1 of the year following the year of withdrawal,
- Intend to occupy the qualifying home as your principal place of residence within one year of buying or building it.
What if you don’t use the funds to purchase a home?
- The funds in the FHSA account must be used to purchase a first home by either the end of the 15th year after the plan was opened or by the end of the year you turn 71 years old.
- At either of those points or if you choose to use the funds for a purpose other than a first-home purchase, the unused balance can then be transferred to a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) or withdrawn on a taxable basis.
Full details of the First Home Savings Account are available from the Department of Finance here.
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