What is the FHSA?
The FHSA is a registered plan designed to help first-time homebuyers save towards their first home, tax-free. Contributions to FHSA are tax deductible (Like an RRSP) and qualifying withdrawals are tax-free (like a TFSA).
What are the benefits of the FHSA?
The FHSA has two major advantages similar to both a TFSA and RRSP.
- The first is that contributions reduce your taxable income (like an RRSP). Meaning, you can save money which could be saved for a downpayment.
- The Second benefit is that there is Tax-free interest, like a TFSA. This means should the money in your FHSA earn money based on your investment, those earnings are tax-free upon withdrawal.
This means that you now get the benefits of investing in both an RRSP and TFSA, all in one account, while also making progress towards your home-buying goal.
Who is eligible for an FHSA?
You are elgigible to open an FHSA if you meet the following conditions:
- You are a Canadian resident.
- You are a first-time home buyer.
- You are between the ages of 18-71.
How Much Can I Contribute to an FHSA Account?
You can contribute up to $8,000 annually – with a lifetime contribution limit of $40,000. Any unused contribution room can carry forward to the following year, up to a maximum of $8,000.
Can I open Multiple FHSA Accounts?
Multiple FHSA accounts can be opened across different financial institutions but the total contribution amount to all FHSA’s cannot exceed the annual and lifetime contribution limits.
What are the spousal contribution rules?
You and your spouse can each open your own FHSA accounts. As long as you’re both first-time home buyers, you can both use your accounts to buy the same home. As a couple, your annual combines contribution room would be $16,000 ($8,000 x2 per year) with a lifetime maximum of $80,000 ($40,000 x 2). Spouses cannot contribute to each others FHSA’s.
Can I hold investments in an FHSA
Yes! You can hold investments such as GIC’s, mutual funds, bonds, or EFT’s in an FHSA. You can also keep cash savings with a FHSA savings account.
When deciding which to choose, consider your personal rish tolerance and your time horizon for purchasing a home.
Do I have to use the FHSA funds by a specific date?
Yes! Once you open your FHSA you have 15 years to use the funds for a down payment on a home. When you remove your funds to purchase a home, you’ll have to close on a home by Oct 1 of that year and move into it within a year. Otherwise you will be subject to taxes.
What if I don't end up purchasing a home?
If you don’t use the money in your FHSA within 15 year of opening the account (or by the end of the year you turn 71), you can transfer it – tax free – to an RRSP or RRIF. You can also withdrawal it, but you will be taxed on the amount you withdrawal.
Can I transfer Funds Between an RRSP and an FHSA? Or between two FHSA?
Funds can be transferred in either direction between an RRSP and an FHSA without tax consequences, as long as they are transferred directly between the financial institutions of the plans involved, and as long as the funds added to the FHSA don’t exceed the unused contribution room. Withdrawl’s from an RRSP are subject to taxes.
Funds may also be transferred between FHSA’s without consequences, but it also must be a direct transfer.
How does the FHSA differ from the Home Buyers Plan (HBP)?
The HBP allows you to borrow up to $35000 from your RRSP tax free, subject to eligibility and conditions, but it must also be paid back within 15 years. With an FHSA, you can contribute a lifetime maximum of $40,000 and qualifying withdrawals are also tax free. However, they don’t need to be repaid. You can contribute to both the HBP and FHSA.