I had conversations with many families throughout the years and many of them would like to own a home. If you’re saving to purchase your first home, the upcoming launch of the First Home Savings Account (FHSA) could be helpful to you.
The First Home Savings Account (FHSA) is a new registered savings plan that aims to help Canadians save for their first home. The FHSA offers prospective first-time home buyers the ability to contribute up to $40,000 tax-free.
Here are what I like about the FHSA:
- Contributions to an FHSA are tax-deductible like an RRSP
- Like a TFSA, income and gains inside an FHSA as well as withdrawals towards the purchase of a first home are tax-free.
- Unlike the RRSP’s Home Buyer’s Plan, you do not need to pay back the FHSA’s withdrawal
Under the legislation, the earliest date an FHSA can be offered is April 1, 2023. At the time I’m writing this post, a number of financial institutions that I work closely with already sent out FHSA information to me. I believe many of them will start offering this account shortly after.
Note: The information provided on this website reflects the current proposed plan and will be updated if changes are made.
To open an account, you must meet these conditions:
- Be an individual resident of Canada.
- Be at least 18 years of age.
- Be a first-time home buyer.
- You or your spouse/common-law partner has not owned a qualifying home that lived in as a principal place of residence, at any time in the year in which the account is opened or the preceding 4 calendar years.
Contributions
Clients can contribute up to $40,000 over their lifetime and up to $8,000 in any one year, including 2023. The annual tax-deductible contribution limit can be carried over to a later year if unused, up to a maximum of $16,000 per year.
For example:
If you only contribute $5,000 to the FHSA in 2023, there will be $3,000 contribution room remaining. It will be carried forward, so you can contribute up to $11,000 to their FHSA the following calendar year.
Notes:
- The maximum amount of unused portions that clients are allowed to carry over is $8,000.
- The FHSA plan can last up to 15 years.
Withdrawals
Qualifying withdrawals for a home purchase are not taxable. To qualify, the withdrawal must meet these conditions:
- You must be a first-time home buyer when they make the withdrawal.
- You must have a written agreement to buy or build a qualifying home before October 1st of the year following the year of withdrawal.
- You must intend to occupy the home within one year after buying or building it.
- The qualifying home must be a housing unit located in Canada.
If the contributions are not redeemed for purchasing a home, it can be transferred to your RRSP account without affecting the RRSP contribution room.
Will FHSA affect ODSP?
Since the FHSA is very new, I’m also not sure about its impact on the ODSP. Therefore, I contacted the Ontario Community and Services about this and below is their response.
“The Federal Tax-Free First Home Savings Account (FHSA) is not an exempt asset under the Ontario Disability Support Program (ODSP). Although the FHSA itself is not specifically excluded, the funds in the account could still benefit from any other applicable ODSP asset exemptions, for example, FHSA funds that are not invested in a segregated fund could count toward a recipient’s asset limit.
Please reach out to your local ODSP office directly for further information, as they are in the best position to provide you with information based on the specifics of your situation. You can find contact details for your local office here: http://www.officelocator.mcss.gov.on.ca/”
Response from Ontario Community and Services as of March 02, 2023
I hope you find this post helpful. But keep in mind that this is a personal blog, so I cannot provide any financial advice through this channel. If you are in Ontario and want to discuss your specific situation, check out my other website for my professional advisory services.
Disclaimer: The information on this post is for general information only and does not intend to provide any advice. They are subjected to change without any notice and are not guaranteed to be error-free. Please consult a licensed financial/tax/legal professional before making any decision.