Saving For Your First Home With An FHSA

The prospect of saving for your first home in the current economic climate is daunting to say the least. In an attempt to help get you on the property ladder faster, the federal government is launching a program designed to help first-time home buyers save for a home, in a tax-free fashion. On April 1, 2023 the First Home Savings Account (FHSA) goes live for qualifying Canadians across the country. The account will give prospective first-time home buyers the ability to save up to $40,000 in total, with tax-deductible contributions and non-taxable withdrawals.

I will preface by saying I am not a financial advisor and the content of this post is for informational purposes only. I can’t stress enough how important it is to speak with a financial expert who can provide trusted advice pertaining to your specific financial situation and goals.

FIRST HOME SAVINGS ACCOUNT (FHSA) IN A NUTSHELL

1. Contributions to the FHSA is tax-deductible, like RRSP, reducing your income tax amount.
2. Like a TFSA you can hold investments in it and grow your money tax-free. Meaning that contributions to the FHSA is tax deductible while withdrawals are tax-free giving you the best of both worlds while saving for your home purchase.
3. You can contribute up to $80,0000 per year up to a lifetime of $40,000.
4. This account is not a replacement for RRSP or TFSA, this is a complementary add on.

WHO IS ELIGABLE TO OPEN AN FHSA?

You can open an FHSA if you are:

• A Canadian resident
• At least 18 years of age
• A first-time homebuyer

FHSA WITHDRAWAL RULES

AKA, the fun bit! Because this means you’ve found your dream home! The withdrawal from your FHSA savings to buy a home will not be taxable. There are few qualifying conditions that must be met to ensure this:

• You must be a first-time home buyer (did we mention this?)
• You must have a written agreement to buy, or build a qualifying home in Canada before October 1st of the year following the withdrawal
• You new home must be your principal residence within 1 year of buying/building it
• You must close your FHSA within a year from your non-taxable withdrawal date that was used to purchase the home. You will not be eligible to open another FHSA account
• You must use the funds in your FHSA to purchase your first home within 15 years of  opening the plan, or by the end of the year you turn 71. 

HOW DOES AN FHSA DIFFER FROM THE HOME BUYERS’ PLAN (HBP)?

Under the Home Buyers’ Plan (HBP) first-time home buyers can withdraw up to $35,000 tax-free from their RRSP to purchase or build a new home. However, that money must be paid back into your RRSP within 15 years. In an FHSA you are not required to pay back the funds withdrawn from that account, because its sole purpose is to help you buy your first home.

IS OPENING AN FHSA WORHWHILE?

If you’ve already been using your RRSP to build up your savings and are ready to make your home purchase in the next 12 months, then utilizing the Home Buyers’ Plan might make the most sense for you. You cannot make a FHSA withdrawal and a HBP withdrawal in respect of the same qualifying home purchase. 

Investing in an FHSA doesn’t necessarily mean your dream of homeownership will come any sooner. Nor will it make housing more affordable. You’ll need at least five years to reach the total allowance, and who knows what the housing market will look like then? Plus, any money you invest will likely have limited time to grow, so any gains you make won’t make a difference if prices continue to increase at their current pace.

That said, if you’re actively saving for a home, the FHSA is the ideal account to put your money into.

Like this post? You might also like these:

Should You Buy A House in 2023? Advice and Next Steps

Understanding Your Mortgage As A First Time Buyer

Home Buying Process: Checklist