Saving up for your first home can be stressful and challenging in this ever-changing market. Recently the federal government of Canada has created a way to help make the process a little easier, so you can begin saving sooner.
In the 2023-2023 budget, they announced several measures to help Canadians who are trying to save money for a down payment on the purchase of their first home, by creating a First Home Savings Account (FHSA). This new savings account is open to eligible taxpayers starting in April 2023.
Contributions to the Plan
This new benefit is open to any resident of Canada who is at least 18 years of age and has not lived in a home which they own in any of the current or previous four years. If criteria are met, you are able to open the plan, contributing up to $8,000 annually. Contributions can be made annually, ending at the end of the calendar year. Unused portions of contributions can be rolled over into the following year. Regardless of the timeline, the maximum you can contribute to this plan is $40,000. Contributions under this plan are similar to contributions made to RRSP accounts.
Withdrawing from the Plan
On a qualifying purchase (when money from the fund is used to make a purchase of a qualifying home) the money contributed, as well as any investment income, are able to be withdrawn tax free. The plan holder must have a written agreement to buy or build a home located in Canada before October 1 of the following year. The plan holder also must intend to occupy that home within one year of buying or building it.
Individuals who open a FHSA have 15 years from the opening date to use funds in the account on a qualifying purchase. If the money is unused in the account after 15 years, or at the end of the year when they turn 71), the account must be closed with funds either being transferred to a RRSP or RRIF (Registered Retirement Income Fund) on a tax-free basis.
This plan is an addition to the existing Home Buyer’s Plan (HBP), which allows an individual to withdraw up to $35,000 from their RRSP and use those funds to purchase a first home. Any funds withdrawn through the HBP however must be repaid over the next 15 years. Both plans are options for buying your first home, however an individual is not permitted to withdraw from both FHSA and a HBP withdrawal in respect to the same qualifying home purchase.