The First Home Savings Account (FHSA) is a new registered account you can use to save tax-free towards the purchase of your first home. In this article, we’ll break down everything you need to know about the FHSA, including what it is, how it works, and who is eligible to use it.
What is the First Home Savings Account?
The First Home Savings Account is a new registered account introduced by the Government of Canada that can help you save tax-free towards the purchase of your first home in three main ways:
- Contributions to your FHSA are tax-deductible, helping you lower your taxable income for the year.
- The interest you earn and the growth you enjoy from funds you’ve invested in your FHSA won’t be taxed, either. That means you can save more and will have more available when you want to purchase your first home.
- Withdrawals you make towards the purchase of your first home are tax-free, too.
How does the FHSA work?
Your FHSA helps you keep your home ownership goals on track by letting you earn tax-free income from investments you hold in the account. Here’s how.
- Make tax deductible contributions up to $8,000 annually, to a lifetime maximum of $40,000. If you don’t contribute the full $8,000 in a single year, the balance can be carried forward for one year and added to the next year’s contribution limit.
- Build on your contributions with tax-free growth. Your funds and any investment earnings can stay in the FHSA and grow tax-free with every contribution you make until you’re ready to buy your first home.
- Carry forward contribution room, but only for one year.
It’s important to note that your FHSA will not remain open indefinitely. It will close on December 31st of the year in which either
- the 15th anniversary of your FHSA opening passes, or
- you turn 71.
Can the FHSA be used for other expenses?
Yes, your FHSA can be used for other expenses, but doing so can be costly. If you need to make an FHSA withdrawal for anything other than the purchase of your first home, you will be taxed on that amount (much like withdrawing funds from an RRSP).
Can my FHSA be used with the RRSP Home Buyers’ Plan?
Yes, you can use your FHSA alongside your RRSP savings for the Home Buyers’ Plan. Your FHSA will not affect your eligibility for that program.
Who is eligible for the FHSA?
Once the FHSA becomes available, you can open one if you are:
- At least 18 years old, and age of majority in your province;
- A Canadian resident with a valid Social Insurance Number (SIN); and
- A first-time homebuyer.
All three of these requirements must be met before you can open your FHSA.
What sorts of investments can be held in the FHSA?
Any investments you’re currently able to hold in a Tax-Free Savings Account (TFSA) are allowed in your FHSA. Coast Capital offers investments to the FHSA such as deposit products that carry interest, including cash savings and Guaranteed Investment Certificates (GICs). We also work with our partners at Worldsource Financial Management Inc. to offer mutual funds investments for the FHSA, as well.
We can help.
Everyone’s financial situation is unique. The financial advice you receive should be unique, too. Speak with a Coast Capital advisor to find out more about First Home Savings Account. We’ll take the time to understand your unique needs and goals, and help you craft a plan for achieving them. Visit a Coast Capital branch or call us at 1.888.517.7000.