Are you diligently saving up to purchase your very first home? Are you looking for a new tool that can help you achieve your goal more quickly? Well, look no further. In this blog post, we’ll discuss the First Time Home Savings Account (FHSA) recently introduced by the Government of Canada.
The FHSA is a tax-sheltered account specifically designed to assist first-time homebuyers in saving for their down payment. It combines the best features of the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA) into one powerful tool.
Learn How the FHSA Can Help You Save for Your First Home in Video
Contributions and Limits of the First Time Home Savings Account
The lifetime contribution limit for the FHSA is $40,000. However, you cannot deposit the entire amount at once. You are allowed to contribute up to $8,000 per year until you reach the maximum limit. So, if you open the account tomorrow with $40,000 saved up, you can contribute $8,000 in the first year.
The First Time Home Savings Account is Income Tax Deductible
One of the key benefits of the FHSA is that it is income tax deductible, similar to the RRSP. Let’s say you make $68,000 in a year and you contribute the maximum $8,000 to your FHSA. When you file your taxes, you can deduct your income as if you only made $60,000. This deduction can result in a lower tax liability or a larger tax return.
Like the TFSA, any investments made within the FHSA are tax-free. If you invest the $8,000 in stocks, bonds, or GICs, any returns or interest earned on that investment will remain tax-sheltered. Additionally, any profits you make on your investments will not affect your contribution room. You can continue to contribute $8,000 per year until you reach the maximum limit of $40,000.
No Tax on Withdrawals
The FHSA offers a unique advantage when it comes to using the funds for your first home purchase. Unlike the RRSP, which requires you to repay the withdrawn amount over a 15-year period, the FHSA does not require repayment. Once you have used the funds for your down payment, you will not be taxed on it or have to pay it back.
Restrictions and Eligibility of the First Time Home Savings Account
To open an FHSA, you must be a Canadian citizen and at least 18 years old. The home you are purchasing must be your first home or be more than four years since you last owned a home. Additionally, the home must be your primary residence. You cannot use the FHSA for an investment property.
In conclusion, the FHSA is a valuable tool provided by the Government of Canada to assist first-time homebuyers in saving for their dream home. With its income tax deductibility, tax-free investments, and no repayment requirements, the FHSA offers unique benefits that make it a worthwhile option to explore. Take advantage of this opportunity and start building your path to homeownership today!
If you have any further questions or would like to discuss the FHSA in more detail, feel free to reach out in the form below.