The Government has confirmed that as of April 1, 2023, financial institutions will have the ability to start offering the new Tax-Free First Home Savings Account (FHSA).
Under this program, prospective first-time home buyers will have the ability to save $40,000 on a tax-free basis and, like a Registered Retirement Savings Plan (RRSP), contributions will be tax deductible. When a client makes a withdrawal from the plan to purchase their first home, that withdrawal is non-taxable, just like a TFSA. This plan includes an $8,000 annual contribution limit and a $40,000 lifetime contribution limit.
For those purchasing with a partner/spouse who is also eligible under this program, both applicants will have access to the $8,000, thus doubling their lifetime contribution limit to $80,000.
Program Highlights
[UPDATED] The FHSA and HBP (Home Buyers’ Plan – RRSP down payment program for First Time Buyers) can now be combined on the same qualifying purchase.
Applicant must be a resident of Canada and between the age of 18 and 71 years old.
Must be a first-time home buyer, defined as someone who has not owned a home in which they have lived at any time during the calendar year before the account is opened, or at anytime in the preceding four years.
Owner of the plan would have the ability to hold a broad range of investments, just like an RRSP or TFSA.
Unlike an RRSP, contributions made in the first 60 days of a calendar year cannot be applied to the previous tax year.
Home buyer has up to 15 years from their first contribution or until their 71st birthday, whichever comes first, to use the funds to purchase a home.
Home buyer can carry forward unused portions of their annual contribution (up to max. $8,000) to subsequent years, as long as they do not exceed the lifetime limit of $40,000.
Funds that are not withdrawn from the plan to purchase a home can be transferred to an RRSP or RRIF on a tax-free basis.
Non-qualified withdrawals from the plan are permitted but will be subject to a withholding tax, just as they apply to taxable RRSP withdrawals.