Wealth Strategies: Taking Advantage of the FHSA for Students

In 2023, the federal government unveiled the new First Home Savings Account (FHSA), a new type of investment account that helps first home buyers save for a down payment. At the time, we wrote a blog post discussing the plan and the benefits: Wealth Strategies: Canada's New Tax-Free First Home Savings Account (FHSA) - What You Need To Know .

As a general overview, the plan allows a person to contribute up to $8,000 to an FHSA each year for five years. Whereas those contributions are tax-deductible against income, the withdrawal from the plan to buy a home is NOT taxed as income. Furthermore, contributions can be carried forward to be used as a deduction in future years.

One interesting strategy to consider for parents who have a child that is attending post-secondary education, is to open an FHSA for that child and begin making contributions. After five years of contributions there would be $40,000 plus tax-exempt growth in the FHSA, at which time the child has presumably graduated and started working and earning a higher income. At that point, the child can begin to use those tax deductions to reduce their income.

As a result, three positive outcomes have been achieved:

1. The young person is already in a position to start looking for their first home, having upwards of $40,000 or potentially much more to use for their down payment, depending on investment growth.
2. The young person is now saving tax each year due to the deductions they can apply against earned income.
3. The tax refunds that will come to the young person as a result of the tax deductions can then be used to either have a larger down payment or to pay for other expenses like furniture and moving when they do find a home to buy.

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