Buying a home is an exciting time and a significant milestone for many people, but it can also be an intimidating and costly process, particularly for first-time homebuyers. Fortunately, the Canadian government has introduced a new savings account to help prospective homebuyers save for their downpayment. Below, we will share what you need to know about the new First Home Savings Account and other downpayment options for first-time buyers.
What is the First Home Savings Account?
The First Home Savings Account is designed specifically for prospective first-time homebuyers. It's a savings account that offers tax incentives to help prospective home buyers save up for a down payment.
You need to be a Canadian resident, at least 18 years of age and a first-time home buyer* to qualify.
*The Government of Canada considers first-time buyers to be individuals who have never owned a home before or those who have not owned a home for at least 4 years prior to registering for an FHSA.
The FHSA allows individuals to contribute up to $8,000 the year they open their account, with a personal contribution limit each year, up to a total contribution of $40,000. FHSA holders can find their contribution limit in their notice of assessment.
Withdrawals are only tax-free when they are designated for a qualifying home purchase. The qualifying home must be your primary residence within one year of purchasing it. You must complete a special form and provide written proof of your home purchase by October 1st of the following year, and you must not have acquired the qualifying home more than 30 days before making your withdrawal.
Closing an FHSA
The maximum participation period begins when the account is opened and ends on December 31st of the year in which the first of the following occurs:
- 15th Anniversary of opening the FHSA
- The account holder turns 71
- The year following the first qualifying withdrawal
When it is time to close the FHSA, account holders can transfer the funds to an RRSP or RRIF or withdraw the funds. The withdrawal will be subject to taxes and must be included as income in the applicable tax year.
The FHSA combines the tax advantages of an RRSP and TFSA in that contributions are tax-deductible, as are any capital gains and withdrawals.
FHSAs are investment accounts which hold risks like any investments. However, unlike RRSPs, they are likely short-term investments, which may put home funds at risk depending on which investments you choose. Investments are known to go up and down, and it is possible that your account may be down when you are ready to buy a home. Speak with your investment specialist to ensure you are choosing the right investments for you.
In conclusion, the First Home Savings Account is a great resource for those just starting to think about purchasing their first home but unfortunately doesn't help first-time buyers looking to get into the market right away. For those home buyers, there are other options available.
Other Downpayment Options
- Home Buyers' Plan (HBP)
- Tax-Free Savings Account (TFSA)
- Downpayment Assistance Programs
- The Alberta Residential Home Ownership Program (ARHOP)
- The Canada Mortgage and Housing Corporation's (CMHC) First-Time Home Buyer Incentive.
Buying a home is a significant investment, and saving for a downpayment can be challenging, particularly for first-time homebuyers. The First Home Savings Account and other downpayment options can help make homeownership more accessible for Canadians. If you're starting to think about purchasing your first home, it's important to explore these options and find the one that best suits your financial situation and homeownership goals.Posted by Sara MacLennan on
I think the new tax-free first home savings account (FHSA) is a great initiative by the government to help Canadians save for their first home. It allows us to contribute up to $8,000 per year and $40,000 in total on a tax-deductible basis, and withdraw the money tax-free when we buy a qualifying home. This is much better than saving in a regular savings account or even a TFSA, where we have to pay tax on the interest or dividends.Posted by Amin on Monday, April 17th, 2023 at 4:12am
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