FHSA Canada: Your Complete Guide to First-Time Home Savers Accounts

FHSA Canada: Your Complete Guide to First-Time Home Savers Accounts

Owning a home is a cherished dream for many Canadians. It signifies stability, security, and a significant life milestone. However, the journey to homeownership, especially for first-time buyers, can be daunting. Balancing the task of saving for a down payment alongside other financial commitments can feel like an uphill battle. That's where the First-Time Home Savers Account (FHSA) steps in.

Understanding the FHSA: A Brief Overview

The FHSA, also known as the Tax-Free First Home Savings Account, is a specialized savings account designed to assist Canadians in saving for their first home. Part of Canada's economic strategy to support first-time homebuyers, the FHSA offers enticing tax benefits and incentives to encourage individuals on their path to homeownership.

Advantages of FHSA

Tax-Free Contributions: Contributions to an FHSA grow tax-free, meaning any interest, dividends, or capital gains earned within the account are exempt from taxation.

Tax-Deductible Contributions: Similar to RRSPs, contributions to an FHSA are tax-deductible. This feature allows eligible contributions to reduce taxable income, potentially resulting in lower tax liabilities.

No Repayment Required: Unlike the Home Buyers' Plan (HBP), which necessitates repayment for withdrawals from RRSPs, there is no repayment required for withdrawals from an FHSA.

Spousal Contribution: Spouses or common-law partners can open their own FHSA accounts, pooling resources to maximize purchasing power.

​​​​​​​Complementary to Other Programs: FHSA can be used alongside the Home Buyers' Plan (HBP), offering flexibility in financing options.

​​​​​​​Transferability: If you decide not to use the funds in your FHSA for a home purchase, you have the option to transfer the savings to the following accounts:

• RRSPs
• RRIFs
• Other FHSAs
•  
• You cannot directly transfer property out of your FHSAs to any other registered plans including:
• Tax Free Savings Account (TFSA)
• Registered Pension Plans (RPP)
• Registered Education Savings Plan (RESP)
• Registered Disability Savings Plan (RDSP)
• Pooled Registered Pension Plan (PRPP)
• Specified Pension Plan (SPP)

FHSA Rules and Considerations

Contribution Limits: Individuals can contribute up to $8,000 annually to an FHSA, with a lifetime limit of $40,000. Unused contribution room can be carried forward, except for contributions made within the first 60 days of the year (unlike RRSPs).

Withdrawal Criteria: You must not have acquired the qualifying home more than 30 days before making the withdrawal. You must be a resident of Canada from the time that you make your first qualifying withdrawal from one of your FHSAs until the earlier of the acquisition of the qualifying home, or the date of your death. You must fill out Form RC725 Request to Make a Qualifying Withdrawal from your FHSA and give it to your FHSA issuer. If you make a qualifying withdrawal and a condition is not met at the time of the withdrawal, your withdrawal will be treated as a taxable withdrawal

• Investment Options: In Canada, there are limitations on the types of investments you can hold in registered accounts. The federal government has stated that the qualified investments for an FHSA are the same as those for a TFSA. This means you can hold the following assets in an FHSA: 
  • Mutual funds
  • Publicly traded securities (such as stocks and exchange-traded funds)
  • Government and corporate bonds
  • Guaranteed investment certificates (GICs)

You cannot hold the following investments in your FHSA:

• Land
• Shares of private corporations
• General partnership units
• Age and Residency Requirements: To open an FHSA, individuals must be Canadian residents aged 18 or older, with the account remaining open for up to 15 years.
• Can I open an FHSA for my child: Although you can't open an FHSA on behalf of your child, once your child opens an FHSA, you can consider giving them up to $8,000 per year to make the annual contributions. They must be 18.
• Are FHSA deposits insured: Yes. Effective April 1, 2023, the Canada Deposit Insurance Corporation (CDIC) will begin to offer separate coverage of $100,000 for eligible deposits held in an FHSA. Canadians’ deposits are now covered under nine different insured deposit categories at CDIC member institutions. Note, however, that while the CDIC covers GICs, it does not cover other types of investments.
• Is FHSA better than TFSA: But the main difference is that an FHSA is designed to help first-time homebuyers purchase a home, whereas a TFSA can be used for any savings purpose, and funds can be withdrawn from it at any time. An FHSA also allows tax-deductible contributions, whereas TFSA contributions are not tax-deductible.

FHSA Provider Comparison (as of February 2024)

(Source: MoneySense)

Understanding FHSA contribution deadlines, eligibility criteria, and withdrawal requirements is crucial for maximizing the benefits of this savings account. Whether you're a prospective homebuyer or exploring financial planning options, the FHSA can serve as a valuable tool on your journey to homeownership.

If you have any questions, don't hesitate to contact me.

Alim Sovani | Sovani Realty

647-963-1799

alim@sovanirealty.com