All About the FHSA

Tawnya Hallman |
Categories
FHSA
Saving

The First Home Savings Account or FHSA is a tax advantaged account introduced by the federal government in April 2023.  It's one of the best accounts a qualifying person can open, for many reasons. This article reviews the basic rules around the FHSA and highlights its many features and benefits. 

 

The Purpose of the FHSA 

The main purpose of the FHSA is to help people save for a down payment to purchase real estate, especially for first time buyers. It does this by offering tax advantages to make saving easier and faster. 

 

Who Qualifies for the FHSA? 

  • A person who is 18 years+ (19 in some provinces). 

  • A person who is a resident of Canada. 

  • A person who has never owned a property, has not owned one in the last 5 years, or has not lived with a spouse or common-law partner who owns a home in the last 5 years.  

 

Key Benefits of the FHSA 

  1. A tax deduction on contributions, like the RRSP.  

  1. A tax deduction claim can be deferred, like the RRSP. (This is advantageous if it’s anticipated that income will be increasing in the next few years). 

  1. Tax-free growth and withdrawals like the TFSA. 

  1. Funds can be invested to earn more potential growth than fixed interest accounts. 

  1. Unused funds can be transferred to the RRSP (or RRIF) without affecting contribution room.  

 

FHSA Contribution Rules 

A person’s FHSA automatically earns $8,000 of contribution room per calendar year starting from the calendar year it is opened. The room is earned whether there is a contribution made or not.  

Contribution room can be carried forward one year at a time so that a maximum contribution of $16,000 can be made in any one year. 

The maximum lifetime contribution room per person is $40,000. Investment growth within the account does not count toward contribution room.  

The FHSA can remain open for 15 calendar years. 

 

FHSA Withdrawal Rules 

Funds within the FHSA can be withdrawn by a qualifying person to purchase a home anytime within that 15-year period.  

If the funds are not used to purchase a home, they can either be: 

  1. Transferred to the person’s RRSP or RRIF, without affecting their contribution room. 

  1. Withdrawn from the account by the holder as taxable income.  

 

Who is the FHSA for?  

A person who qualifies for the FHSA and thinks they might buy property for the first time within the next 15 years. This will allow them to take advantage of the tax benefits (tax rebate and tax-free withdrawals), thereby maximizing their savings.  

This is especially true for people with a limited amount of cash flow to direct to savings. The FHSA offers both the tax rebate and tax-free withdrawals, making it even sweeter than the TFSA and the RRSP. 

If the account isn’t used, the investments can be transferred to the RRSP without affecting contribution room. This is a win because the RRSP will be $40,000+ richer. 

A person who has not owned a home in the last 5 years. This is ideal for anyone who has owned previously but for any number of reasons (travel, divorce), does not anymore.  

Someone with cash they'd like to give as a gift to an adult child or grandchild or anyone else, in a tax efficient way. In this case, not only are they giving cash, but the recipient will earn the tax deduction. If the tax deduction earns a tax rebate, they can use it toward an additional contribution, putting them further ahead. 

 

Open a FHSA  

You can open an FHSA through CSR Wealth Management. Go ahead and book a Money Questions Meeting with us and we’ll start by answering all your FHSA questions.