The Tax-Free First Home Savings Account (FHSA) would save first-time home buyers up to $40,000. Similar to an RRSP, contributions would be tax deductible; like a TFSA, withdrawals from the account to buy a first home—including investment income—would be tax-free.
“It would be really important to help people get that down payment for a home, instead of relying on the Home Buyers’ Plan,” Golombek said.
This plan, which allows home buyers to withdraw RRSPs to buy a home, will always exist. “But you can’t do both for the same house,” Golombek said.
FHSA will have an annual maximum contribution limit of $8,000 and unused contribution room cannot be carried over.
When the Liberals proposed the savings account during the election campaign last fall, it came with an age limit of 40 years. The age limit was removed in the budget.
Another new detail, Golombek said, is that “you can transfer funds specifically from an RRSP to an FHSA,” subject to the $8,000 annual amount and $40,000 lifetime limits.
“If you don’t buy a house within 15 years, you have to close the account,” he said. “And then you can actually transfer what’s left over to an RRSP or Registered Retirement Income Fund (RRIF), or pay taxes on it, if you want.”
The government has said it will work with financial institutions to have accounts available in 2023.
Any Canadian over the age of 18 residing in Canada can have an FHSA, as long as they have not owned a home in the current year or the previous four calendar years. Canadians would be limited to making tax-free withdrawals for a single property during their lifetime.
The budget indicates that the government is reacting to rising housing prices and to Canadians who feel excluded from the market. The national average home price hit a record high of $816,720 in February, up more than 20% from a year earlier, according to the Canadian Real Estate Association.
The government estimated that the new FHSA would provide $725 million in support over five years.
JThis article is part of the AdvisorToGo program, powered by CIBC. It was written without the contribution of the sponsor.
