Wealth Strategies: Canada's New Tax-Free First Home Savings Account (FHSA) - What You Need To Know
Milestone Wealth Management Ltd. - Sep 01, 2022
Canada’s Federal Government is trying to address recent record-high real estate prices, which are becoming prohibitive for new home buyers, especially in the larger suburban markets of Toronto and Vancouver.
Enter Canada’s new FHSA (Tax-Free First Home Saving Account), for which details and parameters were refined further in our most recent budget but which was originally proposed in the Fall 2021 election campaign.
The highlights of the new FHSA include allowing savings which, like an RSP, would be tax deductible. However, unlike an RSP, withdrawals (including investment income within the FHSA) are not taxable.
The existing HBP (Home Buyers Plan) facilitated through RSP’s would still exist and one would be able to access both programs for the same home.
The FHSA will impose an $8,000 annual limit to a maximum of $40,000 for which unused room is not available to be carried forward (unlike an RSP or TFSA).
Individuals will also have the option of transferring funds from an existing RSP to a FHSA, provided it adheres to the $8,000 annual limit and $40,000 lifetime limit.
The FHSA will also impose a 15-year limit whereby if no home is purchased, funds would need to be either transferred to an RSP or RIF, or become subject to taxes, and the FHSA would need to be closed thereafter.
Eligibility requirements for FHSA’s include a minimum age (18 years), and the applicant must be a resident of Canada who has not owned a home in the current year or the prior four years. Similar to the HPB, non-taxable withdrawals will be limited to a single property over the course of the individual’s lifetime.
Government is currently working together with Canadian financial institutions to implement the new FHSA, for a targeted launch at some point in 2023.
Despite that some of the more inflated real estate centres in Canada have had downward movement from their recent highs, prices in general remain quite elevated and are now coupled with higher interest rates. The new FHSA is therefore a handy item in the financial toolkit to assist Canadians with saving towards a real estate purchase.
Disclosure: This information has been provided to give general guidance. For advice specific to your situation, you should consult with your accountant or reach out to your Milestone representative for further information.