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FHSA: frequently asked questions

July 4, 2022

When the 2022-2023 budget was tabled, the Government of Canada announced the creation of a new registered account that will allow for tax-free savings for the purchase of a first home: the Tax-Free First Home Savings Account (FHSA), which will likely be available at some point in 2023. Here’s what we currently know.

At this time, it should be noted that the federal government has only disclosed key elements of the FHSA design.

The legislation has not yet been disclosed, so we must be cautious about the conclusions and recommendations that may be made at this time.

What are the FHSA eligibility requirements?

To open an FHSA, an individual must be a resident of Canada and at least 18 years of age. They must also not have been an owner occupant at any time during the year of the account opening and the previous 4 years.

“It has not yet been determined whether living in a property owned by a spouse could make a person ineligible for the FHSA, as is the case for the Home Buyers’ Plan (HBP).”

Angela Iermieri

Financial Planner, Desjardins

How much can I contribute to an FHSA?

Annual contribution room will be $8,000, up to a lifetime limit of $40,000. This amount is reached after 5 years when the maximum contributions are made each year.

Can unused annual contribution room be carried forward?

Unused annual contribution room can’t be carried forward, but the lifetime contribution limit remains the same. For example, a person could invest $4,000 per year in their FHSA and reach the maximum amount after 10 years.

Is there a maximum age to contribute to an FHSA?

Yes. If the money has still not been used to purchase a qualifying first home, the FHSA will cease to be an FHSA after December 31 in the year in which the earliest of these events occurs: 

  • 15 years after the account is opened or
  • when the account holder turns 71.

The amounts may either:

  1. be transferred to a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF), depending on the individual’s age, without affecting RRSP contribution room and without paying tax in the year of the transfer, OR
  2. be withdrawn and considered taxable income.

Will FHSA contributions be deductible?

“Your FHSA contributions are deductible and may entitle you to a tax refund when you prepare your tax return. That money can be reinvested in your real estate project.”

Angela Iermieri

Financial Planner, Desjardins

Yes. As with RRSPs, contributions made to an FHSA will be eligible for a deduction, which reduces taxable income.

Are FHSA withdrawals taxable?

Is it possible to withdraw more than $40,000?

Since the FHSA is a tax-efficient investment vehicle, the return generated is tax-free. Depending on the investment strategy and the gains made, it may be possible to withdraw more money than the total contributions if there is a good return. “For example, $153 invested every week, with an average annual interest rate of 5%, would be worth $45,248 after 5 years,” says Angela lermieri.

Calculate how much your savings will be worth

Withdrawals are not taxable if they are used to purchase a first home. All FHSA accounts must be closed by December 31 of the year following the year of the first qualifying withdrawal.

Will I be able to transfer money from an RRSP to an FHSA?

Yes, and without tax implications, subject to the FHSAs annual and lifetime limits. However, this option will reduce FHSA contribution room without restoring an individual’s RRSP contribution room and will not allow for an additional deduction.

FHSA or HBP: How do you choose?

Did you know that you don't have to choose between the FHSA and HBP? You can use both when buying your first home (if it's eligible).

Here are some key details and benefits of the FHSA and HBP.

 Overview of the HBP

  • The HBP allows eligible individuals to withdraw up to $35,000 from their RRSP tax-free to buy their first home.
  • Money withdrawn from the RRSP must be repaid within 15 years of the second year following enrolment in the HBP without being eligible for a deduction.
  • If you already have money in an RRSP, you could become a homeowner faster than with the FHSA.
  • If you have unused contribution room, the RRSP loan can be used to get a tax refund and increase your down payment.

Overview of the FHSA

  • The FHSA may not be available until 2023, and a date has not yet been announced.
  • Lifetime FHSA contribution limits will be $40,000 per person. There is no limit on the amount that can be withdrawn, depending on the performance achieved.
  • The money withdrawn doesn’t have to be repaid.
  • Contribution room will be limited to $8,000 each year. It therefore takes at least 5 years to reach the contribution limit, making FHSA a longer-term savings vehicle.

There are many tax advantages to the FHSA, but depending on when you plan to become a homeowner and your existing savings, a different approach may be more advantageous. The best way to achieve your goal is still to assess your options to put in place the best possible strategy. The FHSA could help you achieve your real estate dream!