The New Canadian Tax Free First Home Savings Account
The Canadian First Home Savings Account (FHSA) is an initiative introduced by the Federal Government to assist prospective first-time homebuyers in saving money for their first home purchase. This registered plan offers tax benefits and other incentives to help Canadians achieve their dream of homeownership. Set to be available from April 1, 2023, the FHSA aims to provide flexibility, ease of use, and tax advantages for individuals looking to save for their first home.
Key Features and Benefits:
Tax-Free Savings: The FHSA enables prospective homebuyers to save for their first home in a tax-free manner, up to certain limits. Contributions made to the account are not subject to income tax, allowing savings to grow faster.
Contribution Limits: Eligible individuals can contribute up to $8,000 annually to the FHSA, with a total maximum contribution limit of $40,000. Any unused contribution room can be carried forward. It is important to note that over-contributions are subject to a tax at a rate of 1% per month or part month.
Eligibility: To open an FHSA, an individual must be a resident of Canada, between the ages of 18 and 71, and cannot have owned or had an interest in a qualifying home during the year or the four preceding years. The qualifying home also includes homes outside of Canada. These eligibility criteria ensure the FHSA is targeted at first-time homebuyers.
Transferability: Contributions to the FHSA can be made by the account holder or through transfers from the holder's Registered Retirement Savings Plan (RRSP). However, no tax deduction is available for RRSP transfers. Spousal contributions are not permitted, meaning that only one spouse or partner can contribute to the FHSA.
Withdrawals for Home Purchase: Once a qualifying individual is a resident of Canada and has not owned an "owner-occupied home" in the four preceding tax years, they can request a withdrawal from the FHSA for the purchase of a qualifying home. Certain timing requirements must be met for the purchase arrangements.
Successor Holder Provision: The FHSA allows the account holder to designate a spouse or common-law partner as the successor holder. In the event of the account holder's death, the surviving spouse or partner can receive the FHSA on a tax-free basis without affecting their own contribution limits. If there is no successor holder, specific rules apply to the FHSA[(https://www.blg.com/en/insights/2022/09/c