Welcome, Today, we're talking about something that could be very helpful in your homeownership journey: the First Home Savings Account, or FHSA. If you're looking to buy a home in Ontario, this might be the financial tool you've been waiting for.

So, what exactly is the FHSA? The First Home Savings Account is a new savings program introduced to help first-time homebuyers save up for their dream home. Think of it as a hybrid between an RRSP and a TFSA, combining the best features of both. It's a government-registered savings account designed specifically to help you save for your first home. Think of it as a supercharged savings account with extra benefits.

Key Features of FHSA

Tax-Deductible Contributions: Just like an RRSP, the contributions you make to your FHSA are tax-deductible for that year where contributions are made. This means you can reduce your taxable income, which can be a big bonus at tax time.

Tax-Free Withdrawals:

Similar to a TFSA, when you withdraw funds from your FHSA to buy your first home, those withdrawals are completely tax-free.

Annual Contribution Limit: You can contribute up to $8,000 per year, with a lifetime maximum of $40,000. This can significantly boost your savings over a few years. You are able to carry forward your unused contributions to the next year. For example, if you contributed only $4,000 in one year, you’d be able to carry forward your remaining $4,000 contribution to the next year, in addition to your new annual limit of $8,000. This would mean you will be able to do a tax-deductible contribution of $12,000 ($8,000 + $4000 = $12,000) in the following year.

After opening an FHSA account within 15 years you can utilize it for your first home purchase, or until you turn age 70.

Opening an FHSA is simple. You can open an account at most major banks and financial institutions in Ontario. You'll need to provide proof that you're a first-time homebuyer, and then you can start making contributions right away. Also, I want to mention that if you open an FHSA account and didn't decide to buy a home, it can still be converted to a RRSP, this flexibility makes it even more appealing.

And to top it all FHSAs allow to hold similar type of investments as we have in RRSPs or TFSAs, you can buy GICs, Mutual Funds, Stocks and government bonds etc.

FHSA is an individual savings plan, so you and your spouse can open your own FHSAs and maximize the reduction in taxable income and leveraging the funds towards your first home purchase.

FHSA vs. RRSP Home Buyers' Plan

You might be wondering, how does the FHSA compare to the RRSP Home Buyers' Plan? While both are great options, there are some differences:

Repayment

With the RRSP Home Buyers' Plan, you can withdraw up to maximum of $35,000 to buy your first home, but you have to pay it back over 15 years, beginning in second year following withdrawal. You can review more information on RRSP Home Buyer Plan in this blog here: RRSP Home Buyer Plan .

The FHSA, on the other hand, does not require repayment, making it a simpler and potentially more attractive option for many buyers.

Holding Period

In FHSA there is no minimum holding period or lock-in period before the money can be withdrawn for purchase, in RRSP Home Buyers Plan there is a 90 days hold and funds need to be in the account before any withdrawals are made.

Maximum Annual Contribution

In FHSA the limit is $8,000 per year, upto a life time maximum of $40,000. For RRSP its lesser of 18% of your income or annual limit set by the government for that year.

In summary, while both FHSA and RRSP offer tax advantages, the FHSA is specifically tailored to help first-time homebuyers, while the RRSP is focused on retirement savings. And yes you can combine both of these programs, and if both spouses are contributing they can maximize their withdrawals to fund contributions for their first home purchase.

The FHSA is a fantastic tool to help you save for your first home. By taking advantage of the tax benefits and the ability to withdraw money tax-free for your down payment, you can get a head start on your homeownership journey.

Wish you all the very best! Reach out to our dedicated team at Elixir with any queries you have about real estate, and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Off: 416-816-6001 | [email protected]