The Federal Budget in 2022 proposed to create the Tax-Free First Home Savings Account (FHSA), a newly registered account to help individuals save for their first home. As of January 2023, legislation has passed for this new investment account. However, the account will be available to Canadians on April 1st, 2023. Contributions to an FHSA would be tax deductible, and income earned in an FHSA would not be subject to tax. Qualifying withdrawals from an FHSA made to purchase a first home would be non-taxable.
To open an FHSA, an individual must be a resident of Canada and at least 18 years of age. In addition, the individual must not have lived in a home that they owned either:
- at any time in the year the account is opened, or
- during the preceding four calendar years.
The lifetime limit on contributions would be $40,000, subject to an annual contribution limit of $8,000. The annual contribution limit would be available starting in 2023. An unused contribution room can carry forward to the following year up to a maximum of $8,000.
Amounts are withdrawn to make a qualifying first home purchase and would not be subject to tax. Amounts withdrawn for other purposes would be taxable. Individuals would be limited to making non-taxable withdrawals concerning a single property in their lifetime. Any savings not used to purchase a qualifying home could be transferred to an RRSP or RRIF (Registered Retirement Income Fund) on a non-taxable transfer basis.
If you or your family believe that an FHSA could be right for you, speak with your advisor at The McClelland Financial Group.