Have you heard about the new tax-free First Home Savings Account (FHSA) for first-time home buyers? You can now contribute up to $8,000/year, with a maximum lifetime contribution limit of $40,000. The First Home Savings Account is a great savings tool for those looking to purchase a home in the future. It’s an excellent way to contribute towards a down payment while minimizing taxes.
One of the key features of the FHSA is that it allows for tax-free savings, which means that any contributions made to this account will not be taxed. Additionally, any interest earned on the FHSA is also tax-free. When withdrawn to purchase a first home, it’s non-taxable, just like a TFSA.
Another feature is that it allows for joint accounts so couples can save for a home together. For those purchasing with a partner/spouse, who is also eligible under this program, both applicants will have access to the $8,000, thus doubling their lifetime contribution limit to $80,000.
Program Highlights
- The FHSA and HBP (Home Buyers’ Plan – RRSP down payment program for First Time Buyers) can now be combined on the same qualifying purchase.
- Applicant must be a resident of Canada and between the age of 18 and 71 years old.
- Must be a first-time home buyer, defined as someone who has not owned a home in which they have lived at any time during the calendar year before the account is opened or at any time in the preceding four years.
- The plan owner would be able to hold a broad range of investments, just like an RRSP or TFSA.
- Unlike an RRSP, contributions made in the first 60 days of a calendar year cannot be applied to the previous tax year.
- A home buyer has up to 15 years from their first contribution or until their 71st birthday, whichever comes first, to use the funds to purchase a home.
- Home buyers can carry unused portions of their annual contribution (up to max. $8,000) to subsequent years, as long as they do not exceed the lifetime limit of $40,000.
- Funds not withdrawn from the plan to purchase a home can be transferred to an RRSP or RRIF on a tax-free basis.
- Non-qualified withdrawals from the plan are permitted but will be subject to a withholding tax, the same as they apply to taxable RRSP withdrawals.
For complete information, view the Government First Home Savings Account web page.
Contact your financial institution for more information if you want to open a First Home Savings Account. They can guide you through the process and provide any additional details you may need.