By: Jamie Golombek and Debbie Pearl-Weinberg
November 7, 2023 – The tax-free First Home Savings Account (“FHSA”) gives prospective first-time home buyers the ability to save up to $40,000 on a tax-free basis towards the purchase of a first home in Canada. Like a Registered Retirement Savings Plan (RRSP), contributions to an FHSA are tax deductible and withdrawals to purchase a first home – including withdrawals of any investment income or growth earned in the account – are non-taxable, just like Tax-Free Savings Accounts (TFSAs).
Contributions to an FHSA in any one year cannot exceed $8,000, plus any available carry forward from a previous year. Contributions can also be made by transferring funds from an existing RRSP, but no deduction is available for transfers.
It’s important to note that a “home” for the purpose of using funds in an FSHA includes more than just your typical single-family house. Condominiums, semi-detached houses, townhouses, mobile homes and co-operative units will all qualify!
When you open an FHSA, you must be a resident of Canada, and at least 18 years of age. You also must be a first-time home buyer, meaning you cannot live in a home that is owned, jointly or otherwise, by you or your spouse or partner, in the year you open the FHSA or in the preceding four calendar years.
This differs slightly from the requirements to be able to make a tax-free withdrawal from your FHSA to purchase a home. At the time of withdrawal, you cannot live in a home that you own, jointly or otherwise, at any time in that calendar year or the preceding four years. So long as you don’t live in a home that is owned by your spouse or partner when you open an FHSA, you can therefore live in a home that your spouse or partner owns at the time you make a withdrawal. At the time of withdrawal, the home ownership history of your spouse or partner is irrelevant.
An FHSA can be open for up to 15 years or until the end of the year when you turn 71, whichever comes first. Any funds that are not used to buy a home at that time can be transferred to either an RRSP or a Registered Retirement Income Fund (RRIF), or withdrawn on a taxable basis. You cannot open another FHSA in the future.
Finally, did you know that you can use both an FHSA and the Home Buyers’ Plan (HBP) towards the purchase of the same home? Under the HPB, you and your spouse or partner can each withdraw up to $35,000 tax-free from your RRSP to buy your first home. The amount withdrawn under the HBP must be repaid over a period of 15 years. If repayments are not made as required, the amount not repaid will be included in income for that year.
Jamie Golombek, CPA, CA, CFP, CLU, TEP, is managing director, tax and estate planning with CIBC Private Wealth Management in Toronto. He can be reached at jamie.golombek@cibc.com. Debbie Pearl-Weinberg, LLB, is a tax and estate planning lawyer. She is also the executive director, tax and estate planning with CIBC Private Wealth Management in Toronto. She can be reached at debbie.pearl-weinberg@cibc.com.
