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07 Feb Why Should I Open A First Home Savings Account?

Posted at 14:51h in Blog, Buyer Tips, Mortgages, Press by

First Time Home Savings Account (FHSA) - picture of piggy bank and calculator

Why Should I Open a First Home Savings Account (FHSA)?

What is a First Home Savings Account (FHSA), what are its benefits and how does it compare to a Registered Retirement Savings Plan (RRSP) and a Tax Free Savings Account (TFSA). These are common questions of many first time home buyers.

Benefits of FHSA:

  • Contributions are tax-deductible for the year they are made, similar to a Registered Retirement Savings Plan (RRSP).
  • Income, capital gains, and dividends earned in the account are tax-free, similar to a Tax Free Savings Account (TFSA)
  • No tax consequences when withdrawing money for the purpose of purchasing an eligible home.

Contribution Limits and Carryover:

  • First-time homebuyers can contribute up to $8,000 per year, with a lifetime limit of $40,000.
  • Unused contribution room in a calendar year can be carried over to the following year.

Strategic Opening of FHSA:

  • Financial advisors recommend opening an FHSA to accumulate contribution room, even for those undecided about buying a home
  • Opening the account this year allows for additional contribution room accrual.

Transfer Options:

  • If a home purchase decision is uncertain, individuals can initially focus on accumulating contribution room in the FHSA and later transfer the money to it when ready to buy.
  • Unused funds in the FHSA can be transferred tax-free to an RRSP if a home is not purchased.

Comparison with Other Options:

  • The TFSA offers more financial flexibility but lacks the income tax deductions of an FHSA.
  • Unlike the Home Buyer’s Plan (HBP), the FHSA does not require repayments, and the $40,000 lifetime contribution limit can be combined with the HBP limit for a total of $75,000.

FHSA Uptake and Government Intent:

  • Since its launch, over 250,000 Canadians have opened an FHSA at various financial institutions.
  • The FHSA was created by the federal government to help first-time homebuyers afford a property.

In summary, if you are a prospective first time home buyer but are also uncertain of when you are going to buy; a great strategic option is to open the account now and take advantage of the contribution room accrual. $8,000 per year is the contribution limit, however, since it accumulates year over year, you can maximize the use of the total contribution limit of $40,000 over 5 years. This means you could keep your FHSA open for 5 years and if you suddenly decide to make a down payment on a home, you could transfer any of your existing savings into this account to take advantage of the tax benefits.

Reni McNeil
Mortgage Brokers Ottawa
Apply online: www.renimcneil.ca
renim@mortgagebrokersottawa.com
License: 11759

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