Are you ready to buy your first home? It’s easier now with the new FHSA

Are you ready to buy your first home? It’s easier now with the new FHSA

The new FHSA plan will help you save for a down payment on your first home. Learn more about how it works and how you can take advantage of it.

The federal government announced a new tax-free savings account to help Canadians save for their first home in this year’s budget. The FHSA is scheduled go live starting 2023 and contributions to new accounts will be tax deductible, just like registered retirement savings plan (RRSP). The money in a FHSA is not subject to taxation when it’s taken out for a qualifying first home.

Housing at All Time High

The housing bubble in Canada has been on a constant rise for years as people struggle to find their footing. The average home price is a record $816,720 in February 2022. A staggering increase of 20% when compared to the same time last year. With home prices reaching all-time highs and an influx of new residents, it is becoming more difficult than ever before with each passing day. Homebuyers who are struggling to accumulate a down payment will benefit from this program the most. The FHSA will help to alleviate some of the pressure and allow them grow their down payment tax free. As we mentioned before, the FHSA is not live yet but with the high rent prices in Toronto, you may want to explore buying a place. Be sure you take advantage of this incredible program!

While the FHSA is a welcome addition, it’s important to remember that it’s not a silver bullet and there are still other factors to consider when buying a home. For instance, you’ll need to qualify for a mortgage and make sure you’re comfortable with your monthly payments. You should also factor in things like maintenance and repairs, which can add up over time but if you’re looking to get into the housing market and have been struggling to save for a down payment, the FHSA is definitely worth checking out when it goes live in 2023.

FHSA Details

  • Contributions are tax deductible
  • Accounts will have a $40,000 lifetime limit on contributions and $8,000 annual contribution limit
  • Investment gains are not taxed when taken out to purchase a qualifying first home
  • You are not allowed to use HBP (Homebuyer’s plan using RRSP) and FHSA for the same qualifying home
  • RRSP funds can be transferred to an FHSA
  • Unused FHSA will have to be closed after 15 years after account open date. Unused savings are moved into an RRSP or RRIF or can be withdrawn but taxed.

Summary

The new FHSA account is a welcome addition for first time homebuyers and can help Canadians save tax-free. The downside of the program, however, is that it does not allow you to use both the HBP (Homebuyer’s plan using RRSP) or FHSA for the same qualifying home. This may be an issue for some people but overall the FHSA is a great way to help you save for your first home. Be sure to take advantage of this program when it goes live in 2023!