Understanding the First Home Savings Account (FHSA)
The First Home Savings Account (FHSA) is a new savings program that was introduced in the 2022 federal budget and became available on April 1, 2023. This account combines the best features of both TFSAs (Tax-Free Savings Accounts) and RRSPs (Registered Retirement Savings Plans), offering several advantages over both.
Key Features of FHSA:
- Tax-Free Contributions and Withdrawals: Your contributions to an FHSA are tax-free. You do not need to repay the money when you withdraw it for purchasing your first home.
- Annual and Lifetime Contribution Limits: You can contribute up to $8,000 annually to your FHSA. Unused contribution room can be carried forward, with a lifetime maximum of $40,000.
- Combined Savings for Couples: If you are saving with a partner, each of you can have an FHSA, allowing a combined total of $80,000.
- Integration with Home Buyers’ Plan (HBP): You can combine FHSA savings with the Home Buyers’ Plan (HBP) funds when purchasing your home.
- Account Maintenance: The account can remain open for up to 15 years or until you purchase your first home. It must be closed within the year of entering a purchase agreement. Funds can be transferred into an RRSP without tax penalty at any time.
The RRSP Home Buyers’ Plan (HBP)
The RRSP Home Buyers’ Plan (HBP) is another program designed to assist first-time home buyers. It allows you to use your tax-sheltered savings in a Registered Retirement Savings Plan (RRSP) for a down payment.
Eligibility Criteria:
- You must not have purchased a home within the last four years.
- You must not have lived in a home owned by you or your spouse/common-law partner in the same timeframe.
Program Details:
- Withdrawals: You can withdraw up to $60,000 from your RRSP for a down payment. These funds must be repaid within 15 years.
- Tax Exemption: Early withdrawals from RRSPs are usually taxable, but HBP withdrawals are exempt if conditions are met.
- Repayment Terms: Repayment starts five years after the purchase, with annual installments over the 15-year period. Failure to repay will result in the withdrawn amount being taxed as income for that year.
- New Updates: As of April 16, 2024, the withdrawal limit has increased to $60,000 from $35,000. For withdrawals made between January 1, 2022, and December 31, 2025, the repayment period before starting repayments has extended to five years from two.
Frequently Asked Questions
How do I qualify as a first-time home buyer in Canada?
To qualify as a first-time home buyer, you must:
- Be a Canadian resident at the time of withdrawal.
- Not have owned a home or lived in a spouse’s home in the current or preceding four calendar years.
- You can regain first-time home buyer status if your marriage or common-law relationship breaks down, provided you have lived separately for at least 90 days.
How much do I need for a down payment?
The minimum down payment depends on the home’s purchase price:
- Less than $500,000: 5% of the purchase price.
- Between $500,000 and $999,999: 5% of the first $500,000 and 10% of any amount over $500,000.
- $1,000,000 or more: 20% of the purchase price.
What is the maximum RRSP contribution amount for a first-time home buyer?
Using the RRSP Home Buyers’ Plan, you can deposit up to 18% of your previous year’s income, or up to the maximum RRSP contribution limit for the year. However, the maximum amount you can withdraw for a home purchase is $60,000.
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