Is home ownership just a distant dream in today’s market?
If you feel that way, you’re not alone. For many Canadians, factors like high real estate prices, which require saving a substantial down payment and having a high income to qualify for a mortgage, as well as high rents, are making saving more difficult. But as of April 2023, there is a new savings vehicle to help you achieve your goal to buy your first home. It’s called a first home savings account (FHSA).
What is an FHSA?
A first home savings account (FHSA) is a registered plan allowing you, as a prospective first-time home buyer, to save for your first home tax-free (up to certain limits).
How it works
An FHSA can help you save for your down payment, which can be up to 20% of the total cost of the property. You can contribute up to $8,000 per year into an FHSA, up to a lifetime limit of $40,000. The FHSA is similar to the registered retirement savings plan (RRSP) and the tax-free savings account (TFSA), which are also available to Canadians. FHSA contributions are tax-deductible, as with an RRSP, and the money can be withdrawn tax-free, as with a TFSA—as long as the withdrawal is used for a down payment on a home. Funds put into an FHSA grow tax-free and are not subject to capital gains tax.
Who can open an FHSA
To open an FHSA, you must meet the following requirements at the time the account is opened:
• 18 years of age or older
• A resident of Canada
• A first-time home buyer
To be considered a first-time home buyer when opening an FHSA, you must not have lived in a qualifying home that you owned or jointly owned, at any time in the calendar year before the account is opened, or at any time in the preceding four calendar years. And you must not have lived in a qualifying home that your spouse or common-law partner owned or jointly owned, at any time in the calendar year before the account is opened or at any time in the preceding four calendar years. If you become a non-resident of Canada after opening an FHSA, special rules will apply.
How to open an FHSA
If you are a qualifying individual, you can open an FHSA through an FHSA issuer such as a bank, credit union, or a trust or insurance company. Your issuer will advise you on the types of FHSAs and the qualified investments they can contain.
(Note: FHSAs became available on April 1, 2023. However, certain financial institutions may not launch their FHSAs until later in 2023.)
Types of FHSAs
There are three types of FHSAs that can be offered:
• A depositary FHSA; an account (with a financial institution) that holds money, term deposits, or guaranteed investment certificates (GICs)
• A trusteed FHSA; a trust (with a trust company as trustee) that holds qualified investments such as money, term deposits, GICs, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange
• An insured FHSA; an annuity contract (with a licensed annuity provider)
Self-directed FHSA
You can set up a self-directed FHSA if you prefer to build and manage your investment portfolio by buying and selling different types of qualified investments. Your FHSA issuer can advise you on this.
Contact us for more information
At HNPC, our Real Estate Law Services team will provide you with more information about:
• The types of FHSAs available
• How to open an FHSA
• Investments you can hold in an FHSA
• … And more
Your information will always remain private and confidential.