What is a first home saving account, and why is it important for Canadians?
A First Home Savings Account (FHSA) in Canada is a registered plan that enables first-time home buyers to save for the purchase or construction of a qualifying first home in a tax-free manner, up to specified limits.
If you're considering opening an FHSA, feel free to contact CC&Associates, and we can assess whether you qualify for the account.
In this article, we'll cover:
Requirements for opening the account
Contribution and transfer limits
Consequences of contributing or transferring excessive amounts to your FHSA
Withdrawal and transfer procedures
Open a First Home Savings Account in Canada
To be eligible for an first home saving account in Canada you must be a qualifying individual, meeting the following criteria:
18 years of age or older
71 years or younger as of December 31 in the year you open the FHSA
Resident of Canada
Not residing in a qualifying home as your principal place of residence
First Home Saving Account Contribution Limits
Similar to a Tax-Free Savings Account (TFSA), an FHSA has an annual contribution room, set at $8,000 and a lifetime contribution limit of $40,000.
Contribution room carries forward to the next year if you don’t put in the full amount. Carry-forward amounts only start accumulating after you open an FHSA for the first time. The carry-forward room does not automatically start when you turn 18.
The FHSA is designed for first-time home buyers. This means that at the time the you withdraw money for a home purchase, you have not resided in a home you owned, in the previous four calendar years.
Consequences for Exceeding Your First Home Saving Account Contribution Limit
Exceeding your FHSA limit may incur a 1% monthly tax on the highest excess amount. This tax persists until the excess is eliminated, either through your new FHSA participation room or by removing amounts from your FHSAs.
How to Withdrawal from Your First Home Saving Account
Withdrawals and transfers from your FHSA can be done in various ways. You can opt for a designated withdrawal of a specific amount or make a direct transfer of a designated amount from your FHSAs to your RRSP or RRIF. Typically, designated withdrawals are not taxed, but making a taxable withdrawal, if you no longer qualify, from your FHSA is also an option.
If you decide not to use your FHSA contributions to purchase a home, you can transfer the savings into an RRSP or Registered Retirement Income Fund (RRIF) tax-free. Otherwise, any withdrawals from your FHSA will be considered taxable income.
There are limits to how long you can keep your FHSA account. You must close your FHSA after you’ve had it for 15 years or by the end of the year you turn 71 — whichever comes first.
A FHSA is not for everyone but it is an incredible opportunity for some.
Reach out if you’re considering opening one and we give you insight into if it would be an ideal account for you.
Thanks for reading!
CC&Associates