For those thinking about buying a home in Canada, any way to help save up for a down payment can be a big deal. The federal government first introduced the Tax-Free First Home Savings Account (FHSA) as part of the 2022 budget as a solution to housing affordability. For young people hoping to purchase a home, the tax break could help—here’s how the account works.
Who is eligible for the FHSA?
To be eligible for the FHSA, you must be:
- Canadian
- 18 years of age or older
- A first-time home buyer—meaning you or your spouse do not already own a home
When is the account available?
While this type of account was meant to be available beginning this month, many banks are not yet ready to offer it. Check with your bank to see when you may be able to open an FHSA.
How do contributions work?
You can contribute up to $8,000 each year, to a maximum of $40,000 in your lifetime. You also get an income tax deduction for contributions made in a tax year. The unused contribution room is carried over to the following year.
How is it different from an RRSP or a TFSA?
The FHSA basically combines features from both RRSP and TFSA accounts. Contributions to the FHSA account are tax deductible and like a TFSA, you can withdraw the money tax-free and you do not have to pay it back—but you may only withdraw funds once in your lifetime and it must be to purchase property. Of course, contributions to RRSP’s are also tax deductible. You can also withdraw money from your RRSP to buy or build a home under the Home Buyers’ Plan, but the funds must be repaid to your RRSP.
Tip: You can combine money from your Home Buyers’ Plan and FHSA to buy a home.
How do I use the money?
In order for your withdrawal from the account to be tax-free, you’ll need to prove the money is for purchasing (or building) a home in Canada before October 1 of the year you withdraw it. As well, the account must be closed by the end of the year you withdraw the funds.
What happens if I decide not to buy a house?
If the money isn’t withdrawn for the purposes of buying a home, it’s taxable. However, you can transfer the money to an RRSP or RRIF. It’s important to note that you can keep the account open for 15 years, or until the end of the year you turn 71.
Looking for other first-time home buyer incentives and rebates? Check out our blog here!
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