The recently introduced FHSA can make saving for a first home easier.
The FHSA is a registered plan that gives first-time homebuyers the opportunity to invest up to $40,000 for the purchase of a first home on a tax-free basis. Like a Registered Retirement Savings Plan (RRSP), contributions are tax-deductible, and withdrawals to purchase a first home—including from investment income—are nontaxable, like a Tax-Free Savings Account (TFSA).
How much can I contribute to a FHSA?
- You can contribute $8,000 each calendar year. The lifetime limit on contributions is $40,000.
- You can claim an income tax deduction for contributions made each tax year. Unlike RRSPs,
contributions made within the first 60 days of a given calendar year are not attributable to the
previous tax year.
- For tax purposes, FHSA contributions can be carried forward and deducted in a later tax year.
- Once you open the FHSA, the contribution room will appear on your notice of assessment.
What is my contribution room?
- Unlike a TFSA, you do not accumulate contribution room if your FHSA has not yet been opened.
- If you withdraw money from your FHSA unrelated to a home purchase, this contribution room is not reinstated the following year.
- You can carry forward any unused portions of your annual contribution limit. For example, if you contribute $5,000 in year one, you can contribute the unused amount of $3,000 in year two, in addition to your annual contribution limit of $8,000 for a total of $11,000 in year two.
- Your carry forward amount must not exceed $8,000 and you cannot contribute more than $16,000 in the same calendar year. For example, if you contribute $1,000 in year one and $1,000 in year two, you can only contribute $16,000 in year three.
Can I use both the RRSP HBP’s Program and FHSA to purchase a home?
You can use both the HBP and the FHSA for a first home purchase with a maximum of $35,000 under the HBP. There is no maximum from the FHSA. Your $40,000 contribution to the FHSA can grow to a much larger amount by the time you are ready to purchase your home. You will not need to pay back the FHSA withdrawal however, the HBP withdrawal must be repaid.