Weekly Digest — April 6, 2023

First Home Savings Account (FHSA)

The purpose of the FHSA is to provide first time home buyers more tax benefits when saving for a down payment.

• You must be a first time home buyer between 18 and 71.

• You can save up to $8,000/year capped at $40,000 over your life time.

• Contributions to the FHSA are tax-deductible.

• Gains and withdrawals are tax free if used to purchase a qualifying principal residence.

A Gift From the Tax Heavens

This below calculator will tell you the tax savings based on your annual income. Enter in the maximum annual FHSA ($8,000.00) into the calculator, and watch your annual tax savings automatically adjust.

In Ontario, a $90,000.00 annual income with an $8,000.00 FHSA contribution would realize a tax savings of $2,432.00.

Calculator Link is Here

Other Good Points to Know

• Unlike the Home Buyers Plan, the FHSA does not need to be repaid after property is purchased.

• You can carry over FHSA contribution room to the following year (capped at $40,000.00 for the lifetime). An account must be opened for the carry over to occur.

  • A quick example. A FHSA is opened in 2023 and a $5,000.00 contribution is made. $3,000.00 will carry over to 2024 making the available room $11,000.00 for 2024.

• You have 15 years to apply FHSA funds to a home purchase.

• The deadline is December 31 of each calendar year (unlike an RRSP which is March 1 of the following year).

• You can use both the Home Buyers Plan and the FHSA when purchasing a home.

Should I Open an Account?

YES. This is an absolute no brainer. If you are a first time buyer, this should be at the top of your to do list this year for 2023. Due to the added tax benefit and the fact you do not need to recontribute after the withdrawal, the FHSA should be used in planning for your down payment.

If you are planning on receiving help by way of gifted funds in the future, have them gift you $8,000.00/year and you can contribute the funds into your FHSA account. This way, the savings can grow and you receive the added tax benefit.

FHSA deductions can also be deferred to a future year if you enter into a higher tax bracket. That similar strategy also applies to RRSPs.

Since the FHSA is a brand new program, it will take 5 years at $8,000.00 annually to maximize the benefit. First time buyers may already have available RRSP contribution room available to take advantage of further tax savings.

How to Open an FHSA?

The opening of accounts with major institutions won’t be available until later in the year. Here are the links from the Government for how to open the accounts, as well as the big 6 banks in Canada.

*Note Questrade is a current option to open an account

Government of Canada – Opening and closing a FHSA

Bank of Montreal

CIBC

National Bank of Canada

Scotiabank

Royal Bank of Canada

TD Canada Trust

Disclaimer

This is general information that’s subject to change. It’s provided as-is and is not meant to be advice, including but not limited to tax, legal or investing advice. Caveats apply to some of the points mentioned. Readers should consult a tax professional for guidance applicable to their circumstances.

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