If you’re wondering if this is an account you can use, here’s what you need to know.
The newly introduced First Home Savings Account (FHSA) has caught the interest of many Canadians, especially those looking forward to purchasing a home.
The FHSA has similar tax benefits to the registered retirement savings plan (RRSP) and tax-free savings account (TFSA). You can open a first home savings account through an issuer that offers this account. An FHSA issuer could be a bank, credit union, trust company, or insurance company.
To qualify for the first home savings account, you must be a Canadian resident and above 18 years. More importantly, you must not have lived in a home you own the year you open the account or have owned a primary home in the past four years from the year you open the FHSA.
The FHSA rules mean you can open an account if you have rental property or have not owned a primary home in over four years.
You can invest in the first home savings account and make tax-free investment income, just like the TFSA. However, the contribution limit rules are different. For the FHSA, you can only contribute $8,000 a year and are limited to $40,000 in your lifetime.
If you qualify to open a first home savings account, you can carry over unused annual participation room of up to $8,000. For example, if you open an account in 2023 and do not contribute until 2026, your FHSA participation room would be $16,000 (the annual limit of $8,000 plus only one year’s carryforward of $8,000.)
Looking for more tax benefits? There’s more.
Similar to the registered retirement savings plan (RRSP), your first home savings account contributions are tax-deductible. However, you must use the money in the FHSA to buy your first home. The Canada Revenue Agency (CRA) will tax your withdrawals if you do not.
Similar to the registered retirement savings plan, your investments in a first home savings account are limited to qualified investments, such as stocks, exchange-traded funds (ETFs), guaranteed investment certificates, government and corporate bonds, mutual funds, and other securities listed on a designated stock exchange.
Can you keep the first home savings account open forever like the TFSA? The answer is no.
You can only have an FHSA until the earliest of 15 years after you open the account, the year you turn 71, or the year after you withdraw to buy your qualifying first home. If you do not use the funds to buy your first home, you can transfer the money on a tax-deferred basis to your RRSP or registered retirement income fund (RRIF).
Alternatively, you can withdraw your money for any other purpose. However, remember that you will pay taxes on the withdrawn amount.
The first home savings account is another great registered account for tax benefits. If you are eligible to open one, using tax benefits is always a good idea.
Keep in touch with your Foster Advisor or Portfolio Manager to find out as soon as it’s available!
Disclaimer: This article is for general information purposes only, and is not legal, financial, or tax planning advice. Everyone’s situation is unique, and this article cannot apply to every person. The reader should not take any action, or refrain from taking any action, as a result of this article without first obtaining legal or professional advice.
