First Home Savings Account (FHSA)

The First Home Savings Account is a registered plan that started April 1, 2023. It allows first-time homebuyers to save for their first home tax-free (up to certain limits). It is no secret that saving for a down payment can be extremely difficult and, in some cases, may take a lot of time, dedication, commitment and planning. If this sounds like a situation that you are in, I believe that the FHSA is an excellent opportunity to protect your funds and grow your down payment. Unlike any other account, you will not be taxed when you contribute or withdrawal your money – in other words, the government doesn’t take away from your investment. What you contribute and earn all goes towards your first home!  With the FHSA you can contribute up to $8,000 a year, until you reach $40,000.

You can take a look ay my pervious blog about the FHSA here.

For now, let’s dive deeper into the details of the account.

Who can open a FSHA?

Anyone who meets all the following criteria can open an FHSA:

-        At least 18 years of age

-        Not more than 71 years of age on December 31 of the year

-        A Canadian resident

-        A first-time homebuyer

What is considered a first-time homebuyer?

You are considered to be a first-time homebuyer if you did not, at any time in the current calendar year before the account is open or at any time in the preceding 4 calendar years, live in a qualifying home as your principal residence. Further, you, your spouse or common-law partner (at the time the account is open) must have owned or jointly owned said principal residence.

How to open a FHSA?

You can open a FHSA through a bank, credit union, trust or insurance company. It is possible to have multiple FHSA open at one time. However, it is very important to not go over your contribution limits in a calendar year. Once you are ready to open your account, the issuer will let you know what documentation is required to do so.

Types of FHSAs

There are 3 types of FHSAs that you can open:

1.      Depositary FHSA

a.      An account that holds money, term deposits or GICs

b.      Opened with a financial institution

2.      Trusteed FHSA

a.      A trust that holds qualified investments – money, deposits, GICs, mutual funds, etc. – that are listed on the designated stock exchange

b.      Opened with a trust company as a trustee

3.      Insured FHSA

a.      An annuity contact

Note: You can also set up a self-directed FHSA if you wish to build and manage your investment portfolio for yourself.

When do you close your FHSA?

1.      The 15th anniversary of opening your first FHSA

2.      You turn 71 years of age

3.      The year following your first qualifying withdrawal from your FHSA

Note: When you close your account, if you have funds remaining you can transfer them to your RRSP account.

How much can you contribute?

You can either contribute or transfer from your RRSP account to your FHSA, as long as you stay within the contribution limits.

Contribution room per year = $8,000

Lifetime contribution limit = $40,000

As stated above, you can have more than one FHSA, however your contribution room per year and lifetime contribution limit will be a combined total for all accounts. Therefore, you can’t contribute $8,000 or $40,000 to each account.

If you do not use all of your contribution room within a year you can carry over this amount, but only up to $8,000.

Example 1:

If you contribute $8000 in year 1, $2000 in year 2, you can contribute $14,000 in year 3.

Year 2 = $8,000 (limit) - $2,000 (what you contributed) = $6,000 (contribution room available)

Year 3 = $8,000 + $6,000 = $14,000 (carried over amount)

Example 2:

If you contribute $8,000 in year 1, don’t contribute from year 2-4, in year 5, you can contribute an additional $8,000 bringing your total contribution room to $16,000

Note: You can’t contribute to your spouse or common-law partner’s FHSA

Note: Any contributions made within the first 60 days of the year will not be deductible from your previous years income tax and benefit return, unlike your RRSPs.

Transferring between FHSAs and other Registered Plans

In general, you can transfer funds from your RRSPs to your FHSA without any immediate tax consequences. This is the case so long as you are doing a direct transfer from one account to the other, and you are not exceeding the contribution room. Likewise, you can transfer from your FHSA to other FHSAs or RRSPs so long as it is a direct transfer, and any other necessary conditions are met.

Types of withdrawals

When you withdrawal from your FHSA, the reason for the withdrawal will directly impact your tax implications. The types of withdrawals are as follows:

1.      A qualifying withdrawal

2.      A designated amount

3.      An amount otherwise included in your income

Outside of these withdrawals, the amount taken out of your FHSA will be taxable and included as income on your income tax and benefit return for the year the withdrawal is received.

Note: A transfer does not count as a withdrawal.  

Tax deductions for FHSA contributions

The contributions made to your FHSA may be deducted on your income tax and benefit return for the year you contributed, or even a future year, this is similar to how an RRSP works.

The maximum you can deduct is the lesser of:

The total of all your annual FHSA limits for the year and each prior year – the total of all of your FHSA deductions for each prior year

OR

$40,000 – the total of all your FHSA deductions for each prior year – All amounts transferred from your RRSPs to your FHSAs for the year and each prior year

The contribution periods for a FHSA is January to December, so you will be deducting from that timeline.

If you make contributions after your first qualifying withdrawal, you cannot deduct this from your income tax and benefit return. Additionally, transfers from your RRSP to your FHSA cannot be deducted.

There is a lot more information available about the FHSA, which can be found on the Government of Canada website here - https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html

When it comes to the FHSA there is a lot to know and learn, that is what I am here to help with! If you’re interested, book a meeting with me to discuss if this is the right solution for you!