In its 2022 Budget this past Spring, the Federal Government announced a new account to help first time homebuyers save up to $40,000 for a down payment on their first home. While this Tax-Free First Home Savings Account (FHSA) will not be available until sometime in 2023, for those thinking of purchasing a home in the future, we wanted you to be aware of the benefits now. We believe our clients and their families will find this account useful with its significant tax benefits combined with flexibility in accessing the saved funds.
Who is eligible?
The account is available to Canadian residents who are at least 18 years of age, no older than 71, and buying a home for the first time (or who have not owned a home in the current and prior 4 calendar years). A minimum down payment of 10% of the value of the home is required.
The FHSA shares several features you will be familiar with in RRSP and TFSA accounts. Contributions to the plan are tax-deductible and income on your investments grows tax free. However, unlike an RRSP, withdrawals to buy a home are not taxed as income.
You can contribute up to $8,000 per year to a lifetime maximum of $40,000 starting in 2023 and unused amounts can be carried forward to future years.
These are significant benefits as the tax deductibility of the contribution alone can, for someone in Ontario with an income of about $75,000 and putting in the maximum amount, reduce their taxes by about $2,500 giving them more money to save for a home.
The FHSA can stay open for a maximum of 15 years, allowing funds to compound tax free for an extended period.
If used to buy a home, all the funds, including any income earned within the account, can be withdrawn tax free.
Even if you decide not to buy a home with the money, the plan allows you to transfer the money to an RRSP or RRIF with no impact to your contribution room – a very attractive alternative.
We are happy to discuss how this opportunity may benefit you and your family. Call us for a review of your existing investment plan and how an FHSA can add value in the context of your personalized financial goals and strategy.