What do we know about the launch of a Tax-Free First Home Savings Account?

Next year, Canadians may have a possibility to receive certain help with purchasing their home, as the federal government launches a Tax-Free First Home Savings Account (FHSA).

This program was introduced in the 2022 federal budget. It is developed to help first-time homebuyers enter Canada’s hot real estate market.

Last week, the Department of Finance provided its draft proposals with more details on the new account.

Here’s what we know about it so far.

The FHSA is a combination of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA), but it was created specifically to help save for a home.

All contributions to an account and withdrawals from it will be tax-deductible.

If you want to open such an account, you need to be a Canadian resident of 18-71 years old, and it has to be your first home purchase.

The annual contribution limit is $8,000, but if you have unused share of an annual contribution left it can be transferred into the next year.

The account can be open for 15 years or until the person turns 71.

Users can have the same kind of investments as a TFSA, in their FHSA, meaning you can have publicly traded securities, mutual funds and bonds.

At the same time, there are certain requirements you need to meet when you decide to withdraw funds from your FHSA:

  • the property you are planning to purchase with the funds withdrawn from your FHSA has to be in Canada;
  • you need to plan using that house as your principal residence;
  • you need to have a written agreement to buy or build that home before October 1 of the year following the funds withdrawal.

It’s unclear whether this option will become popular among first-time homebuyers, but still, a tax-free saving account can be quite useful. You can withdraw money tax-free if you purchase a home. If you don’t, the funds will just go to your RRSP which is also great.


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