HOW TO SAVE TO PURCHASE A HOUSE
By Brian Belcourt, Financial Advisor
The Canadian government created a new account type in 2023 for residents to save to purchase their first Home. First Home Savings Account FHSA, can be setup at most financial institution.
FHSA are the best way to save for a home as it combines the advantages of a RRSP; your contributions are tax deductible and the advantages of a TFSA redemptions to purchase or build a house are not taxed.
Annual contribution limit: $8,000
Lifetime contribution limit: $40,000
Maximum participation period: 15 years (or to age 71)
Tax payable on qualifying withdrawals: $0
Do you qualify for the FHSA?
Yes, if you:
Are a Canadian resident and you have a social insurance number?
Are of legal age in your province of residence
Are under age 71
Have not lived in a qualifying home in Canada that you or your spouse owned at any time in the year that the FHSA account was opened or at any time in the preceding four years.
An advisor can help you find the strategy that works best for you.
Transfers from a RRSP to a FHSA are allowed. It is important to complete a direct transfer, not withdraw the funds and reinvest in a FHSA. Direct transfer will make sure there is no tax to report on the withdrawal of funds from your RRSP.
If you decide to not use the funds in your FHSA to purchase or build a home, you can transfer the funds to a RRSP without having to pay taxes.
A FHSA allows you to contribute up to $40,000 and can be combined with a Home Buyers Plan which allows you to use up to $35,000 from your RRSP to purchase or build a home.
If you plan on starting a savings program to purchase a home, you should be talking to an advisor about opening a First Time Home Savings Account.