The account ties the best parts of a RRSP and a TFSA together. You will receive a tax-deduction on contributions much like a RRSP, while contributions ,income and gains inside the account will be tax-free upon withdrawal to purchase a home. The account has an annual contribution limit of $8,000, with the lifetime contribution limit being $40,000. You can carry forward up to$8,000 of the unused annual contribution amount (i.e. if you open a FHSA in2023 and contribute $4,000, in 2024 you can contribute up to $12,000). It is important to note that you must have an account open to start accumulating carry forward contribution room. Unlike RRSP contributions, FHSA contributions must be made within the calendar year (no first 60 day contributions) to be able to use the deduction for that tax year. Deductions do not need to be claimed in the year of contribution and can be carried forward indefinitely. FHSA withdrawals do not need to be repaid unlike the RRSP Homebuyer’s plan.
As mentioned above qualifying withdrawals are tax-free. To qualify you must meet the following conditions:
- Must be a Canadian resident from time of withdrawal until the acquisition of home
- Must have a written agreement to buy or build a qualifying home and intend to occupy the home as a principal residence within one year of purchase or completion
- Qualifying home must be a housing unit located in Canada
If funds are leftover after a qualifying withdrawal or no home is purchased, funds can be transferred to a RRSP/RRIF on a tax-free basis. This transfer does not reduce your available RRSP contribution room. Once transferred the funds are subject to the rules or the specific account (i.e. taxable upon withdrawal). FHSAs must be closed by December 31st in the year you turn 71, by December 31st of the 15th anniversary of the opening of the account if home purchase is not made, or by December 31stthe year following a qualifying withdrawal. Non-qualifying withdrawals will be considered income for the year of withdrawal and are subject to withholding tax.
So, what does this mean for planning going forward…. individuals who are eligible to open an account should do so regardless of your intention to purchase a home. With the ability to transfer a FHSA to your RRSP without reducing your RRSP contribution room, it gives you $40,000 (not including growth within the FHSA) of extra RRSP contribution room. For now, you have the ability to use both the FHSA as well as the RRSP Homebuyer’s Plan. This allows potential homebuyers to capitalize on two different registered savings vehicles to purchase a home.
Plans are available as of April 1st 2023,institutions will start to roll out the availability of these accounts over the next few weeks. There is some urgency to opening an FHSA as you won’t accumulate the carry forward contribution room unless you have an active plan open. If you are a first time homebuyer or know someone who is please contact us so we can incorporate this into your planning!
