In 2022, the federal government introduced a new registered savings plan for first-time home-buyers called First Home Savings Account (referred to as “FHSA”). Eligible individuals have the opportunity to take advantage of the FHSA effective April 1, 2023. Summarized below are rules relating to the FHSA.
To be an eligible individual, you must be a first-time home buyer that is an individual resident of Canada between the age of 18 and 71. It is important to note you do not qualify as a first-time home buyer if you, your spouse or common-law partner owned a qualifying home that you lived in as your principal residence at any time in the calendar year before the account is opened or the preceding four calendar years.
The Lifetime contribution limit is $40,000, with an annual contribution limit of $8,000 in any year. Contributions can also be carried forward indefinitely, but only $8,000 of carry forwards can be claimed in a year, which effectively creates a maximum FHSA contribution room of $16,000 in any given year.
Similar to RRSPs, multiple FHSAs are allowed but will have a combined contribution limit. Income and capital gains/losses earned in the FHSA are not taxable or deductible. However, unlike RRSPs, there is no 60-day extension available for contributions. Contribution limits are based on a calendar year. If there is an overcontribution, there will be a 1% tax imposed per month.
Your withdrawal from the FHSA will be tax-free for a qualifying home. However, you must be a resident of Canada from the time of withdrawal to the acquisition of the qualifying home, and you must be a first-time home buyer when you make the withdrawal. An exception will allow a qualifying withdrawal within 30 days of moving into a qualifying home. The qualifying home must be a housing unit located in Canada. Please note, new homes with extended construction plans may cause the withdrawal to be offside.
Funds remaining in the account after making a qualifying withdrawal can be transferred to another FHSA or RRSP or RRIF on a tax-free basis before the end of the year following the year of withdrawal. Transfers do not reduce or limit your available RRSP contribution room. If the funds are transferred to an RRSP or RRIF, all funds will be taxable when withdrawn in the future. The FHSA account must be closed by December 31st of the year following the year of the first qualifying withdrawal.
Also, the FHSA must be closed by December 31st of the year you turn 71 or by December 31st of the 15th anniversary upon first opening the account. If you do not buy a home within the 15-year FHSA limit, the funds can be transferred to your RRSP tax free before the end of the 15th year. The transfer will not reduce your available RRSP contribution room so it effectively creates more RRSP room by contributing to the FHSA.
If you have any questions regarding this, or require additional information, please contact us.
