First Home Savings Account (FHSA)
Exciting news for those looking to buy their first home in Canada – the First Home Savings Account (FHSA) is set to arrive in April!
This account will allow Canadian residents to contribute up to $40,000 towards their first home, with contributions being tax deductible and any capital gains being tax-free.
The new FHSA will have a yearly contribution limit of $8,000 and a lifetime contribution limit of $40,000, with withdrawals not needing to be repaid.
Home Buyer’s Plan (HBP)
The new FHSA will be able to be used in addition to the existing Home Buyers’ Plan (HBP) to help first-time home buyers save for an even bigger down payment.
The HBP allows you to withdraw up to $35,000 from your RRSP tax-free but that amount must be repaid over 15 years, and any contributions not repaid will be considered taxable income.
Using Them Together
Prioritizing your FHSA over your RRSP may be worthwhile since it provides tax benefits on contributions and withdrawals, however, high-income earners may want to focus on their RRSP first since they’ll likely have more contribution space than the FHSA.
The ability to choose between these tools (or use both of them together) gives homeowners more options when deciding how to save for a down payment. If you take advantage of both the FHSA and HBP, when you’re ready to buy, you could have access to up to $75,000 between the two accounts.
In conclusion, the combination of the new First Home Savings Account and the existing Home Buyer Plan provides a powerful tool for first-time homebuyers in Canada to save more efficiently for a down payment. With the FHSA arriving in April, now is the time to start planning and taking advantage of these savings tools.
If you have any questions about these changes coming up in April, feel free to give me a call.
Denisse Moran Z