New Program – First Home Savings Account (FHSA)
A New Tool in Your Box as of April 1, 2023
What is a First Time Home Savings Account (FHSA)?
An FHSA is a new type of savings account introduced by the federal government that provides tax advantages for first-time homebuyers. Provided qualifications are met the money is tax free, both when deposited to and when withdrawn from the account.
Who Can Open an FHSA?
A person can open an FHSA account if they are:
- at least eighteen years old (in some provinces a person might not be eligible until they reach their province’s age requirement of nineteen to enter into binding contracts),
- a resident of Canada, and
- a first-time home buyer (A person can open an FHSA if at any time in the calendar year before the account is opened or at any time in the preceding four calendar years they did not live in principal residence that they or their common-law partner owned or jointly owned.).
Note that qualifications for opening an FHSA account are different from qualifications for, as discussed below, withdrawing from one.
Where Can an FHSA Be Opened?
An FHSA can be opened with an authorized issuer (such as a bank, credit union, trust, or insurance company). Note that many authorized issuers are not yet set up to open FHSA accounts.
How Much Can a Person Contribute?
The tax-free advantage is available for deposits of up to $8,000 per calendar year with a $40,000 lifetime limit. A person can carry forward any part of the $8,000 that is not used in a given year.
Only the holder of the FHSA can claim the related tax deduction; common-law partners are not allowed to participate in each other’s accounts.
Withdrawing from an FHSA
A withdrawal is tax free if the person:
- provides a Form RC725 to the FHSA issuer to make the withdrawal,
- is a first-time home buyer [A person is a first-time home buyer for purposes of making a withdrawal if at any time in the calendar year before the withdrawal (except the 30 days immediately before the withdrawal) or at any time in the preceding four calendar years, the person did not live in a housing unit as their principal residence that they owned or jointly owned.],
- has a written agreement to acquire or construct the property before October 1 of the year following the withdrawal having been made,
- has not acquired the property more than 30 days before the withdrawal is made, and
- was a resident of Canada from the time the first withdrawal was made until the earlier of the acquisition have been made or the person having died.
Closing an FHSA
To avoid unfavourable tax consequences, a person must close their FHSA on the earliest of the following dates, with the time starting from when the account was opened and ending on December 31 of the year in which the earliest of the following occurs:
- the account has been open for fifteen years,
- the person turns seventy-one, or
- a year expires from the time the first qualifying draw is made.
Not all finer details of the FHSA program are covered in this summary. A fuller description can be found here: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html
The information in this writing is not intended as legal advice.