The Government of Canada has introduced a new registered plan to save first-time home buyers $40,000 tax-free. This plan will begin on April 1, 2023.
Who can open an FHSA
a) A Canadian resident at least 18 years of age.
b) An individual must be a first-home buyer (they have not owned a home any time during the part of the calendar year before the account opened or at any time in the preceding four calendar years).
Contribution limit & Terms
a) The lifetime contribution would be $40,000
b) The maximum annual contribution will be $8,000.
c) Contribution made to the FHSA is eligible for a tax deduction.
d) Unused portion of any year would be allowed to carry forward to the next year.
e) Carry-forward amounts would only start accumulating an individual opens an FHSA for the first time.
f) An individual would be allowed to hold more than one FHSA, but total contribution is limited to “a” and “b”.
Contributions during the first 60 days of the year
Unlike RRSPs. contributions that you make to your FHSA during the first 60 days are NOT DEDUCTABLE on your previous year’s income and benefit return.
If the savings are not used to purchase a home
If the savings not used to purchase a qualifying home could be transferred on a tax-free basis into an RRSP or RRIF or have to withdraw on a taxable basis.
Qualifying Withdrawals
The following conditions must meet to get the withdrawal to be a qualifying withdrawal:-
1) The taxpayer must be a first-time home buyer at the time a withdrawal is made.
2)The taxpayer must also have a written agreement to buy or build a qualifying home before October 1st of the year following the year of withdrawal and intend to occupy the qualifying home as their principal place of residence within one year after buying or building it.
3) A qualifying home would be a housing unit located in Canada.
4) If the above conditions are met, the entire amount of available FHSA funds may be withdrawn on a tax-free basis in a single withdrawal or a series of withdrawals.
Spousal contribution
The FHSA holder would be the only taxpayer permitted to claim deductions for contributions made to their FHSA. An individual would not be able to contribute to their spouse or common-law partner’s FHSA and claim the deduction.
Over contribution
Like TFSA, a 1% of tax on over-contribution to an FHSA would be applied for each month to the highest amount of such excess that exists in that month.
How is the FHSA different from the Home Buyers Plan (HBP)
With the current HBP, can withdraw up to $35,000 from their RRSP, subject to eligibility and conditions, then pay back the fund to their RRSP over 15 years.
But the FHSA fund does not need to be paid back.
DISCLAIMER,
This is for informational purposes only and the contents are taken from the CRA website, please contact us for more details to open an FHSA.
