A Comprehensive Guide to the First Home Savings Account (FHSA): Everything You Need to Know
Are you, your children, or your grandchildren dreaming of owning your first home in Canada? The First Home Savings Account (FHSA) might be the right tool to help you achieve that dream. This innovative savings account offers first-time home buyers significant tax advantages and flexibility. Below, we’ll walk you through everything you need to know about the FHSA, from eligibility requirements and contribution limits to tax deductions and permitted investments.
What is the FHSA?
The First Home Savings Account (FHSA) is a specialized savings vehicle designed to help Canadians save for their first home. This account allows first-time home buyers to save and invest money tax-free to buy or build a qualifying home.
Who Can Open an FHSA?
To be eligible for an FHSA, you must meet the following criteria:
Be a Canadian resident: You must reside in Canada to open and maintain an FHSA.
Be at least 18: You must be 18 or older to open an FHSA.
Be a first-time home buyer: You must be a first-time buyer, meaning you have not owned a home you lived in during the calendar year before opening the FHSA, nor in any of the preceding four calendar years.
Be under 71 years old: You must be under 71 years old to open an FHSA.
Account Duration: Your FHSA will cease to exist on December 31st of the 15th year after opening your FHSA account, or the year you turn 71 years old, whichever comes first.
How to Make the Most of Your FHSA
Annual Contributions
Contribution Limit: You can contribute up to $8,000 annually to your FHSA.
Carry Forward: If you do not use the full $8,000 contribution limit in a year, you can carry forward the unused amount to the next year, up to a maximum of $8,000. For example, if you contributed $5,000 in 2023, you could contribute up to $11,000 in 2024 ($8,000 for 2024 plus $3,000 unused from 2023).
Lifetime Contribution Limit: The total lifetime limit for contributions is $40,000.
Checking Your Contribution Room: Use Schedule 15 to determine your FHSA contribution room for the year.
Reporting Your FHSA Activity
Your FHSA issuer will provide you with a T4FHSA slip that details:
Box 18: Total contributions made to your FHSA.
Box 32: Amounts transferred from RRSPs to your FHSA.
Box 34: Amounts transferred from a spousal RRSP to your FHSA.
Tax Deductions and What You Need to Know
The FHSA offers some tax benefits, but there are specific rules to be aware of:
FHSA Contributions: Contributions to your FHSA may be deductible on your income tax return for the year of the contribution or a future year.
Lifetime Deduction Limit: You can claim up to $40,000 as an FHSA deduction.
Unused Contributions: Contributions made but not deducted can be carried forward even after closing the FHSA.
What Cannot Be Deducted
There are a few things you cannot deduct from your FHSA:
Contributions made in the first 60 days of the year cannot be deducted for the previous year’s tax return.
Contributions made after your first qualifying withdrawal are not deductible.
Contributions exceeding the $40,000 lifetime limit cannot be deducted.
Investment losses, administration fees, and borrowing costs for FHSA contributions are not deductible.
What Can You Invest In?
Your FHSA can hold a variety of investments, including:
Cash
Mutual Funds
Stocks and Bonds listed on designated stock exchanges
Guaranteed Investment Certificates (GICs)
Canada Savings Bonds and Provincial Savings Bonds
Certain Shares of Small Business Corporations
Withdrawals and Transfers from Your FHSA
When it comes to accessing your FHSA funds, there are a few options:
Withdrawals Without Tax Consequences
Qualifying Withdrawal: If you are a first-time home buyer, you can make a withdrawal to buy or build a qualifying home. You must have a written agreement to buy or build the home, and the acquisition or construction must be completed before October 1 of the year following the withdrawal. Additionally, you must plan to occupy the home as your principal residence within one year.
Designated Withdrawal: This type of withdrawal is included in your income. You can transfer the amount to another FHSA or an RRSP or RRIF to avoid this. Transfers to other registered accounts are not allowed.
Conclusion
The FHSA is a fantastic option for Canadians looking to buy their first home. It offers tax-free growth on your savings and provides flexibility with contributions and withdrawals. By understanding the contribution limits, tax benefits, and investment options, you can make the most of your FHSA to achieve your homeownership goals.
Ready to get started? Consult with us to see how an FHSA can fit into your home-buying strategy and help you take the next step toward owning your first home!
Have questions or need personalized advice? Contact our team of experts at Matthews + Associates for more information on the FHSA and other financial planning services. Let us help you make the most of your savings and investments!
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