Hello!
I wanted to send this out as the new First Home Savings Account (FHSA) being rolled out April 1st looks to be a great option to take advantage of for first time buyers.
NOTE: you could have owned a property in the past & still be considered a first time buyer (details below).
If you already own a home, and plan to always live in a home that you own, it is still worth getting familiar with this program if you have (or plan to have) kids & eventually help them to buy.
The FHSA is like an RRSP combined with a TFSA:
-like an RRSP: contributions reduce your taxable income & save on income tax
-like a TFSA: when you take funds out you do not have to pay income tax on the withdrawal (unlike an RRSP).
I think this program is worth doing EVEN IF you didn’t ever plan on buying a home. The reason being that if you don’t buy, the funds can be transferred into your RRSP tax free & not impact your RRSP contribution room, so in that sense you can get more money into your RRSP than you could otherwise (if you don’t end up buying).
If you do buy, you can obviously take that cash out tax free & don’t have to pay it back as you do with the Home Buyers Plan RRSP program we’ve had for many years.
If you had to choose, I would ensure the FHSA is maxed out before looking to contribute to your TFSA or RRSP.
The Nitty Gritty:
-can open the FHSA once you are 18+
-as long as you have not lived in a home owned by you or your spouse in the current year & previous 4 calendar years, you are considered a first time buyer (ie: if you own a rental property or have owned 4+ years ago, you can participate)
-annual contribution limit is $8k up to a lifetime max $40k & contribution room carries forward (but you can only catch up by a max of $8k for prior years)
-can hold any investment you could with a TFSA (Savings, GICs, mutual funds, stocks, etc.)
-you could withdraw funds up to 30 days AFTER you move into your home, or even in the year prior of you buying (as long as you enter a purchase agreement by 0ct 1 in the year after the withdrawal)
-if the FHSA isn’t used after 15 years (or by the time you turn 71) you can roll those funds tax free into an RRSP or RRIF
Suggestions:
-if you are considered a first time buyer, open the account now, even if you don’t think you’ll be able to make any contributions this year (you want to start building room as soon as possible if you plan to buy in the next 15 years)
-if you’re self employed, paying yourself only dividends (which doesn’t generate RRSP room), you can still participate in the FHSA & bypass income tax
-if your spouse is earning income, ensure both of your FHSA’s are maxed each year if you plan to buy in the next 15 years
-if you are a parent planning to help your children eventually buy, consider putting those funds into the kid’s FHSA. They can still use them to buy & will save on income tax. If you think your child will buy before they turn 33, open their account as soon as they turn 18 to start building room (after 15 years the account must be closed or rolled into an RRSP).
-like an RRSP, you can carry deductions forward & use them in your high income earning years
-from what I can tell there are no limitations on how long funds have to sit in the account before you withdraw
At the very worst, the FHSA is free RRSP contribution room. At best, you can save funds to buy a home tax free & save on income tax. Honestly, there are no downsides I can think of.
This program goes live tomorrow so let me know if you have any questions or want to discuss.
LINK TO DETAILS: