The Canadian government has introduced the First Home Savings Account (FHSA), aiming to assist individuals in saving money for their first home. This account combines the benefits of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP). It allows eligible Canadians to make tax-deductible contributions and withdraw funds tax-free specifically for the purpose of purchasing a home. Let's explore the key details and advantages of the FHSA.
Am I Eligible for the FHSA?
To open an FHSA, you must be a Canadian resident and at least 18 years old. Additionally, you must be a first-time homebuyer, meaning you have not owned and lived in a home during the previous calendar year or in the four years prior. Contributions cannot be made to a spouse or common-law partner's FHSA.
Contribution Limits and Rules
FHSA holders can contribute up to $8,000 annually, with a lifetime contribution limit of $40,000. Unused contribution room can be carried forward to the following year, up to a maximum of $8,000. Only the account holder can claim an income tax deduction for contributions made in a specific taxation year. Exceeding the contribution limits may incur a 1% tax on the excess amount.
Withdrawal Rules and Options
When withdrawing funds from the FHSA, certain conditions apply. The account holder must be a first-time homebuyer at the time of withdrawal. The qualifying home must be acquired (or construction completed) within 30 days before the withdrawal and before October 1st of the following year. It should be intended as the primary residence within one year of acquisition. Transfers to another FHSA, RRSP, or Registered Retirement Income Fund (RRIF) are allowed. It's important to close the FHSA by December 31st of the year following the first qualifying withdrawal.