The FHSA Advantage

The FHSA offers a unique advantage to first-time homebuyers by allowing contributions of up to $8,000 per year, up to a lifetime limit of $40,000. Notably, any unused contribution room in a calendar year carries over to the following year, giving you the opportunity to accumulate additional room.

 

Tax Benefits

Similar to an RRSP, contributions to the FHSA are tax-deductible for the year they are made. Plus, just like the TFSA, any income, capital gains, and dividends earned within the account remain tax-free. The real beauty of the FHSA emerges when you withdraw the money for the sole purpose of purchasing an eligible home—no tax consequences.

 

Why Open an FHSA Now?

Financial advisors are recommending opening an FHSA this year to secure additional contribution room. Even if you’re uncertain about buying a home, opening an FHSA allows you to start accumulating contribution room. You can contribute as little as $10 this year, and the remaining contribution room will carry over to the next. If you later decide to purchase a home, you can transfer your accumulated funds to the FHSA, receiving a tax receipt for income tax deduction.

 

Flexibility and Options

If you’re undecided about homeownership, consider putting most of your savings into a TFSA initially. When you’re ready to make a decision, you can seamlessly transfer funds to the FHSA. If homeownership doesn’t materialize, the funds in your FHSA can be transferred to your RRSP tax-free, without impacting your RRSP contribution room.

 

FHSA vs. TFSA or HBP

As you weigh your options for saving for a down payment, it’s essential to consider how the FHSA compares to other tools like the TFSA or the Home Buyers’ Plan (HBP).

TFSA: While it lacks the income tax deductions of an FHSA, the TFSA offers greater financial flexibility, allowing you to use the money for any purpose, including a down payment.

HBP: The Home Buyers’ Plan lets you withdraw up to $35,000 from your RRSP for a down payment, with repayments required over 15 years. In contrast, the FHSA stands out for not necessitating any repayments.

 

The Bottom Line

The FHSA presents a promising avenue for first-time homebuyers, offering a unique blend of tax advantages and flexibility. By opening an FHSA before the year concludes, you can strategically position yourself to take advantage of accumulating contribution room, even if you’re uncertain about homeownership. As you embark on your journey toward owning your first home, the FHSA could be the financial ally you’ve been waiting for.

 

Who is Eligible to Open an FHSA?

  • Age: You should be at least 18 years old but not more than 71 years old.
  • Residency: You must be a resident of Canada.
  • First-Time Homebuyer: You qualify if, in the current calendar year or the preceding four calendar years, you haven’t lived in a qualifying home as your principal residence, either individually or jointly with your spouse or common-law partner.

 

How to open a FHSA:

Contact an FHSA issuer, which can be a bank, credit union, trust, or insurance company. Over 20 financial institutions, including the Big 6 banks, currently offer FHSA accounts.

You will need to provide the following:

  • Social Insurance Number (SIN)
  • Date of Birth
  • Any supporting documents to certify your eligibility as a qualifying individual

 

Closing Your FHSA:

Your maximum participation period begins with the opening of your first FHSA and concludes on December 31 of the year in which the earliest of the following events occurs:

  • The 15th anniversary of opening your first FHSA.
  • You turn 71 years of age.
  • The year following your first qualifying withdrawal from your FHSA.