First Time Home Buyers Now Eligible for Tax-Free First Home Savings Account 

TUESDAY, NOVEMBER 22, 2022

Good news for first-time home buyers and parents looking to help their kids - as of January 1, 2023 they are eligible for the newly introduced Tax-Free First Home Savings Account, which allows account holders to save up to $40,000 tax-free over the account’s lifetime.

The account combines the best attributes of RRSPs and TFSAs - similar to the Tax-Free Savings Account, you never have to pay taxes on the growth or capital in FHSA withdrawals, and similar to the RRSP you are entitled to a tax deduction. If, for example, the contributor earns $80,000 per year they would save will save 30% of the amount contributed of up to $8,000 from that year’s tax bill. The higher your tax bracket, the higher your tax saving - those in higher tax brackets can save up to 53%.

The accounts investing capabilities are also similar in structure to the TFSA, with account holders permitted to purchase the same qualified investments allowable in a Tax-Free Savings Account. 

To be eligible for the FHSA, the account holder must be a resident of Canada, at least 18 years of age and a first-time home buyer, defined as not having owned a home they lived in in the past calendar year or at any time in the four preceding years. The annual contribution limit will be capped at $8,000, and an individual may carry forward any unused portions of their contribution limit - for example, an individual who contributed $4,000 in 2023 will be eligible to contribute up to $12,000 in 2024. 

For parents supporting their children with first time home purchases, this is a great new way to contribute in a tax efficient manner.

Note that the ability to carry forward begins only once the FHSA has been opened, not automatically in 2023 – so if you’re planning on purchasing in the next five years, it is beneficial to open as soon as possible. Also, similar to the RRSP, individuals are not required to claim a deduction for the tax year in which a contribution is made - they can be carried forward and deducted in another tax year.

Transfers will be allowable from the FHSA to another FHSA, an RRSP or an RRIF on a tax-free basis. Withdrawals from the account are allowed in conjunction with a first-time home purchase, and you must be a Canadian resident at the time of withdrawal.

If you have any questions please reach out to us.