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What is a FHSA?
First Home Savings Account (FHSA) is a government tax structure that started in April 2023 to help people save for their first home using tax-free dollars in a registered account. What you invest in your FHSA will be determined by when you want to buy your first home.The Structure:
- Pre-tax money going in – This is the exactly the same as an RRSP. Your contributions into the FHSA will reduce your tax bill.
- Tax-free money coming out – This is exactly the same as a TFSA.
- THE BOTTOM LINE – You never pay tax on this money.
The Rules:
Contributions
- Maximum of $8,000/year
- Up to one year carryforward: If you missed one year of contributions or a portion of a year, you can catch up that balance to a maximum of an additional $8,000 contribution
- The lifetime limit is $40,000 of contributions (not including growth)
Timeline
- You must use the funds by the end of the 15th year from your first contribution
- If you withdraw funds, you must have a written agreement to purchase or build a home by October 1st of the year following your withdrawal
Withdrawals
- Qualifying withdrawal – no tax owing and you never have to pay it back
- Non-Qualifying withdrawal – taxable in the year withdrawn and it does not reinstate the room in a future year
Benefits of the FHSA
There are 3 benefits of the FHSA: 1. Tax-Free Money to buy your first home: It is exactly that…tax free. There are no other programs as good as this 2. First place for young people to put their long-term savings:- Why?
- It has the same initial benefits as a RRSP
- It has the added advantage of potentially being tax free for the first home
- You can transfer funds to the RRSP later if you don’t end up using it (if you have the contribution room in your RRSP)
- What it is not.
- This is NOT a place to put short term savings or money that you may need in the future
Wrapping it up
The FHSA is a no brainer for anyone looking to buy their first home. It is $40,000 of contributions PLUS growth that can be used towards your first home. There are minimal downsides to this program. The Government of Canada provides a full guide on how to open an FHSA, contribution rules, tax deductions for FHSA contributions and a calculator to help you estimate how much you could save for a down payment for your first home by participating to your FHSA – learn more here.Vince Olfert, Certified Financial Planner
Vince specializes in helping business owners and their employees build and protect their wealth. With his years of experience, he understands the financial and emotional issues that come with managing wealth. He was highlighted in Advisors Edge magazine for his work with pensions and group retirement services. Vince continually strives to find new ways to communicate complex financial concepts so they are easy to understand for our clients.
He spends his spare time with his wife and kids, coaching community sports, and volunteering with local youth programs.