We have an exciting update to share with all of the aspiring first-time homebuyers out there! Whether you’re in Montreal or elsewhere across Canada, this is news you need to know.
In this piece, we’re diving into the all-new First Home Savings Account: a game-changer for anyone who is looking to save up for their first home.
What is an FHSA?
True to its name, a First Home Savings Account is a brand-new savings plan designed to help qualifying individuals put money aside for their first home purchase. Against the backdrop of decreased affordability in all areas of life, it offers some fantastic advantages to make the journey to homeownership more accessible and rewarding.
Contribution limits
How much are people allowed to put into their FHSAs each year? You’ll be able to set aside up to $8,000 annually, with a total lifetime contribution cap of $40,000. These contributions are tax-deductible from your income, giving future homebuyers the opportunity to save on taxes while building their nest egg.
If you can’t max out your contribution amount in a given year, no worries! You can carry forward any unused room into the following year. For example, if you contributed $6,000 in 2023, you could contribute up to $10,000 in 2024 ($8,000 annual limit + $2,000 left over from the previous year). This means you’ll never miss out on potential savings.
You can also transfer funds from your RRSP to your FHSA without tax consequences, as long as you stay within the FHSA’s contribution limits. However, certain rules apply, so be sure to consult with a financial advisor to make the most of your savings strategy.
When it’s time to buy
The real magic happens when you’re ready to purchase your first home. The FHSA allows you to make tax-free “qualifying withdrawals” for this purpose. To be eligible, you must meet certain criteria, such as being a first-time homebuyer, being a resident of Canada, and not having owned a qualifying home in the past four years. Plus, you must have an agreement in place to buy or build the home before October 1st in the year following the withdrawal.
Are all withdrawals tax exempt?
The FHSA comes with a maximum participation period, which begins when you open your account. This period lasts until the end of the year following one of three events: your FHSA’s 14th anniversary, when you turn 70, or when you make your first qualifying withdrawal. After this period, your FHSA will no longer be tax-exempt, but don’t worry – you can transfer any unused savings to an RRSP or withdraw them on a taxable basis.
The bottom line
The FHSA is truly a powerful savings tool, combining the best of both the RRSP and TFSA benefits to help aspiring homeowners achieve their dreams. With its tax-deductible contributions and tax-free withdrawals, it offers a compelling framework for accumulating savings for that first property purchase. Whether you’re about to embark on your homeownership journey or considering making a move down the road, the FHSA can be an excellent addition to your financial plan.
As always, when it comes to financial matters, seeking advice from a qualified professional is a must before you make any big decisions!