The tax-free First Home Savings Account (FHSA) is a savings account designed for first-time home buyers, allowing them to contribute up to $8,000 per year and with a lifetime limit of $40,000. If you plan on purchasing your first home, this registered account may be right for you. Let's look at the FHSA in detail and compare it with other registered plans.
Who qualifies for an FHSA?
To qualify, you must be a Canadian resident and are looking to purchase your first home in Canada. A first-time homebuyer is defined as someone who has not owned a home in which they lived at any time during the part of the calendar year before the withdrawal is made or at any time in the preceding four calendar years. In other words, if you (and your spouse) already own a home the FHSA is not for you.
How much can I contribute to the FHSA?
The new savings account allows first-time homebuyers to contribute up to $8,000 per year, with a lifetime limit of $40,000.
Is the FHSA contribution tax-deductible?
Yes, similar to an RRSP the FHSA contribution can be used to deduct taxable income for the current year.
Is the investment income tax-free?
Yes, similar to a TFSA the investment income in the FHSA is tax-free.
Do I have to pay installments back to the plan like the HBP?
Unlike the first-time homebuyer's plan (HBP) under an RRSP, there is no repayment required.
Can I transfer my RRSP to the FHSA?
Yes, you may transfer your existing RRSP to the FHSA as long as you do not go over the FHSA limit. The transferring out of the RRSP does not constitute a withdrawal, thus there is no tax implication. Also, it does not affect your RRSP contribution room.
What if I decide not to purchase a new home?
If you have decided not to use the FHSA to purchase a home, you may transfer it to an RRSP or RRIF. It does not affect your RRSP contribution room.
What happens if I over-contribute to the FHSA?
Like TFSA, a 1% tax on over-contributions to an FHSA would apply for each month (or a part of a month) to the highest amount of such excess that exists in that month.
How long can I keep my FHSA?
You can keep your FHSA open until the fifteenth anniversary of your first opening an FHSA; or when you turn 71 years old, whichever is earlier.
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