Understand the benefits of the First Home Savings Account and discover how this plan can help Canadians with homeownership goals.
CIBC Investor’s EdgeNov. 18, 2023
6-minute read
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Buying a first home isn’t what it used to be. Housing prices, inflation and rising interest rates have created a challenge for many Canadians trying to break into the real estate market. To help potential first-time home buyers, the federal government has introduced the FHSA (First Home Savings Account), a new tax-free registered plan where you can contribute up to $40,000 lifetime limit towards the purchase of a qualifying first home.
To help you get more familiar with the FHSA, we answer some of your most common questions.
What is the FHSA?
The FHSA is a new registered plan designed to help Canadians break into the housing market and save for a qualifying first home. A qualifying home is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units and apartments in duplexes, triplexes, fourplexes or apartment buildings all qualify. A share in a co-operative housing corporation that entitles you to possession, and gives you an equity interest in a housing unit located in Canada, also qualifies. However, a share that only provides you with a right to tenancy in the housing unit does not qualify.
Do I qualify for the FHSA?
To qualify for the FHSA, you must:
Be a Canadian resident with a SIN
Be at least 18 years of age — depending on the type of FHSA, you may have to be the age of majority in your province or territory of residence*
Be a first-time homebuyer
Who is considered a first-time homebuyer when an FHSA is opened?
You will be considered a first-time homebuyer when you open an FHSA if, at any time in the calendar year before the account is opened or at any time in the preceding four calendar years, you did not live in a qualifying home — or what would be a qualifying home if located in Canada — as your principal place of residence that either:
You owned or jointly owned
Your spouse or common-law partner owned or jointly owned
How much money can I put into an FHSA?
Eligible Canadians can contribute, or transfer from their registered retirement savings plan (RRSP), up to $8,000 per year into their FHSA, up to a lifetime maximum of $40,000. If you contribute less than the $8,000 annual contribution limit, the unused contribution room would be added on to your annual limit for the following year, up to a maximum of $8,000.
For example, if you contributed $4,000 to your FHSA in 2023, you would be able to contribute $12,000 in 2024 — $8,000, plus the remaining $4,000 from 2023.
What are the advantages of an FHSA?
Get a tax deduction when you contribute
When you contribute to an FHSA, you can claim a tax deduction on your tax return. For example, let’s say you contribute the full $8,000 in the first year and your tax rate is 25%. This would give you a potential tax savings of $2,000. Do this for five years and you’ve got a total potential tax savings of $10,000. You can claim the tax deduction in the year of contribution, or in a future year. Note, however, that transfers to your FHSA from your RRSP are not eligible for a tax deduction because you would have already received a tax deduction when you contributed those funds to your RRSP.
Grow your investments tax-free
Like all registered plans, you can keep the money you contribute to your FHSA in cash or use it to invest in guaranteed income certificates (GICs), bonds, stocks, mutual funds and exchange-traded funds (ETFs). For investments outside of a registered plan, any income or gains earned are taxable.
Withdraw your money tax-free
Let’s fast-forward to when you’re ready to buy a qualifying first home. You can take the money out of your FHSA — including your original contributions and any investment earnings — without paying any tax on it to purchase that qualifying first home.
Can I use both the FHSA and the RRSP Home Buyer’s Plan?
One benefit is that you don’t have to choose just one way to save. When you’re ready to buy a qualifying first home, you can use money withdrawn from your RRSP under the Home Buyers’ Plan (the HBP) and from your FHSA.
As was mentioned earlier, with the FHSA, your contributions are tax-deductible, and withdrawals are tax-free if used to purchase a qualifying first home.
The RRSP HBP allows you to withdraw up to $35,000 tax-free from your RRSP to help buy your first home. However, the amount you withdraw must be repaid to your RRSP within 15 years. Any withdrawals from your RRSP that are used to purchase a home, that are not part of a HBP withdrawal, will be considered taxable income.
FHSA
RRSP
Who is eligible?
Canadians 18 or older with a valid Social Insurance Number (SIN)
Canadian residents with a Social Insurance Number (SIN) who are under age 71, have earned income and file a tax return in Canada
How much can I contribute?
$8,000 annually, plus up to $8,000 of your unused contribution room, up to a maximum lifetime limit of $40,000
18% of previous year’s earned income, less any pension adjustment, up to maximum annual limit ($30,780 for 2023)
Are contributions tax-deductible?
Yes
Yes
Do withdrawals have to be repaid?
No
Yes, money withdrawn from your RRSP through the Home Buyer’s Plan has to be paid back into your RRSP in equal payments over the next 15 years.
Can I make tax-free withdrawals?
Yes, to purchase a qualifying first home
Yes, the withdrawals under the HBP are tax-free if you contribute your annual repayment amount back into your RRSP each year. The minimum annual repayment is 1/15 of the amount withdrawn.
Maximum withdrawal limit
No limit
$35,000
What if I change my mind and decide not to buy a home?
You can keep your FHSA open for up to 15 years or until the end of the year when you turn 71, if this is earlier. If you do not use your FHSA to buy a qualifying first home, you have a couple of options:
Transfer the balance of the account on a tax-deferred basis to your RRSP (without impacting your contribution room) or RRIF
