Canada's New 'Tax-Free First Home Savings Account' Will Be Available Within Days — Get Ready
The account is designed to make it easier for first-time buyers to save. 🏠🔑
Aerial view of a suburb.
As part of the 2023 federal budget, the government has doubled-down on its plans to introduce a new Tax-Free First Home Savings Account (FHSA) in Canada.
Per the original plans, the account would give prospective first-time home buyers the ability to save up to $40,000 in total, with tax-deductible contributions and non-taxable withdrawals.
The purpose of the account would be to help prospective homebuyers in Canada save more money towards their first home and allow more people to get onto the property ladder faster.
Speaking on March 28, as part of the budget delivery, the feds confirmed that financial institutions will be able to start offering the account to Canadians as of April 1, 2023, with individuals able to contribute the full $8,000 annual limit.
With just days to go before the account will become available nationally, here's everything we know about Canada's new Tax-Free First Home Savings Account and what you should know about applying to open one.
What is the Tax-Free First Home Savings Account? (FHSA)
In the 2022 budget, the federal government proposed the introduction of a Tax-Free First Home Savings Account (FHSA) — a new registered plan that will help Canadians save towards their first home.
The account will allow account holders to contribute up to $8,000 per year (up to a lifetime total of $40,000) and, like a Registered Retirement Savings Plan (RRSP), contributions will be tax-deductible.
Any unused contribution room will be able to be carried forward to the following year, up to a maximum of $8,000.
What's more, like a Tax-Free Savings Account (TFSA), eligible withdrawals to purchase a home will be non-taxable.
In the 2023 budget, the government said it would be delivering on its commitment to make housing more affordable in Canada, and confirmed that financial institutions will start offering FHSAs to Canadians as of April 1.
Who can open a FHSA?
Per the original plans, individuals will have to be at least 18 years old and a resident of Canada to open an FHSA.
What's more, they must be a first-time homebuyer — meaning they have not owned a home and lived in it during any part of the calendar year before the account is opened, or any time in the previous four years, either.
The account can remain open for 15 years, but will cease to exist after December 31 of the fifteenth year.
What's more, those who turn 71 years old while contributing to a FHSA must close the account before the end of the calendar year that they turned 71 — or buy their first home.
What happens if you don't buy a home?
If — for whatever reason — you do not end up buying a home or you do not qualify to withdraw the money for your first home, all will not be lost.
Any unused savings in your FHSA can be transferred to another FHSA, or a qualifying RRSP or RRIF (Registered Retirement Income Fund) on a non-taxable transfer basis.
Those transferred funds will be taxed upon final withdrawal, but not upon transfer.
If you decide to withdraw your FHSA savings without purchasing a home, all funds will be subject to taxes.
How to withdraw the money for your first home
To withdraw your FHSA savings tax-free, there are set to be several conditions.
The individual must be a first-time homebuyer and meet the qualifying conditions, have a formal agreement to buy or build an eligible home in Canada before October 1 of the year following the year of withdrawal, and they must intend to live in the property within one year of buying or building it.
When can you open a FHSA?
If everything goes to plan, Canadians will be able to open FHSAs at financial institutions across Canada as of Saturday, April 1.
It has been said that account holders will be able to contribute the full $8,000 limit within 2023, despite not being able to open an account until the fourth month of the year.
Banks, including Scotiabank, RBC and TD Bank have already started sharing information about FHSAs on their websites, with many set to offer the accounts as early as April 1.
Where can you open an FHSA?
Any financial institution able to issue RRSPs and TFSAs are expected to be able to issue FHSAs, including banks, credit unions, Canadian trust companies and life insurance companies.
How is the FHSA different from the Home Buyers Plan?
Canada's existing Home Buyers' Plan allows eligible Canadians to withdraw up to $35,000 from an RRSP, then pay back the funds over 15 years.
The FHSA is different as the funds do not need to be paid back.
With FHSAs becoming available in the coming days, now is a good time to consider whether a FHSA is an option to help you on your home buying journey!
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