THE FIRST HOME SAVINGS ACCOUNT IS FINALLY HERE!
- by Andrew Hawryluk
- April 19, 2023
We are often asked by clients for advice on ways to help their children or grandchildren learn how to invest and build wealth. Many clients want to help the next generation, but instead of just handing over money, they want to help see how it can change their lives for future generations. There are a multitude of ways you can help that next generation, and we are often reminding clients of just one of our key Manifesto points – being kind comes back to you!
The Federal government has seen the challenges many have faced in the first-time home buyers’ market. Pricing and rates have made this more challenging for many, but have now come up with a way to help that first time home buyer start to save for that first home sooner with more advantages than a regular savings account.
The First Home Savings Account (FHSA) is a newly created registered savings plan designed to help Canadians save for their first home. The FHSA was announced in the Federal 2022 Budget and is now open for contributions as of April 1, 2023.
Who can participate?
You must be an individual resident of Canada, 18 years of age (or the age of majority in your province) and not turning 72 or older in the year. You must be a first time home buyer – meaning you or your spouse or common law partner did not own a qualifying home that you lived in as part of your principal residence at any time in the current calendar year before the account is opened or at any time in the preceding four calendar years
Contributions and Deductions
You can contribute up to $8,000 a year (including 2023) to a maximum of $40,000. Just like an RSP, the contributions to the FHSA are claimable against taxable income to reduce the amount of tax payable. The account can remain open for up to 15 years. The Investments with the plan grow tax free and withdrawals for a down payment are tax free. This is the same tax treatment from contributing to a TFSA, so this new FHSA enjoys many of the best benefits of a TFSA and an RSP. You cannot contribute directly to the FHSA for a child, but you can gift the funds to them to make deposits on their own to these plans, with no attribution of Investment Income back to you. Contributions can be carried forward if you do not need the deduction in the year that the contribution is made – this is especially important where younger Income earners may not fully need the deductions now, but can certainly benefit in the future.
Income and Gains
Income as well as capital gains (and capital losses) earned in an FHSA are not included in your annual income (or deductible) for tax purposes. Therefore, income and capital gains can continue to grow and compound in the Account on a tax-free basis.
Withdrawals and Transfers
In order to remain tax free – withdrawals meet certain conditions such as being a resident of Canada from the time of the withdrawal to the acquisition of the qualifying home and a first-time home buyer when you make the withdrawal. There is an exception to allow individuals to make qualifying withdrawals within 30 days of moving into a qualifying home. You must also have a written agreement to buy or build a qualifying home before October 1 of the year following the year of withdrawal and intend to occupy the home as a principal place of residence within one year after buying or building it. The qualifying home must be a housing unit located in Canada.
There are other factors to be considered with the FHSA including, but not limited to Spousal Treatment of contributions, closing out the FHSA as well as the treatment of the account on death. We would be more than happy to walk you through all of the nuances of the plans.
Without question this can be a fantastic way to help one save for their first home. This strategy can be combined with other measures which down the line can help them to build equity and wealth. We would be more than happy to review your strategy and determine if the FHSA is the right idea for you or your family.
By Andrew Hawryluk
Assante Financial Management Ltd.