The Home Buyers’ Plan (HBP) and the Tax-Free First Home Savings Account (FHSA) are both government-funded programs designed to help Canadians save for their first home.
The HBP allows Canadians to withdraw funds from their Registered Retirement Savings Plans (RRSPs) to buy or build a qualifying home for themselves or a related person with a disability. The withdrawn funds must be paid back within a 15-year period and your RRSP issuer will not withhold tax on withdrawn amounts of $35,000 or less.
The Canadian government has recently proposed within the 2022 budget, the new savings program called the Tax-Free First Home Savings Account (FHSA). This registered plan aims to assist Canadians in saving for their first home by allowing them to contribute up to $40,000 over the lifetime of the plan. The FHSA combines the benefits of both a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA), providing tax-deductible contributions and non-taxable withdrawals for the purchase of a first home. Unlike the Home Buyers’ Plan, funds withdrawn from an FHSA do not need to be repaid.
Eligibility for both programs requires the individual to be a first-time home buyer and a Canadian resident. The FHSA also has an age limit of 71 years old, or the end of the year following the year in which a qualifying withdrawal is made for a first home purchase, whichever comes first.
Who qualifies to open an FHSA?
To be eligible to open a FHSA, you must be a Canadian resident, at least 18 years old, and a first-time home buyer.
The account can be active for a maximum of 15 years or until the end of the year in which you turn 71, or until the end of the year after you make a qualifying withdrawal from the FHSA for your first home purchase, whichever comes first.
Individuals can claim a tax deduction for contributions made to an FHSA in a given year, with an annual cap of $8,000 and a lifetime limit of $40,000. Any unused contribution room can be carried forward to the following year, up to a maximum of $8,000.
If a qualifying home is not purchased, savings can be transferred to an RRSP or RRIF on a non-taxable basis, subject to rules. However, if transferred funds are not used, they will be subject to taxes upon withdrawal. To qualify for a withdrawal, one must be a first-time homebuyer and a resident of Canada at the time of withdrawal, have a written agreement to buy or build a home in Canada before October 1 of the year following withdrawal, and intend to occupy the home as their primary residence within a year of purchase or construction. The FHSA differs from the Home Buyers Plan in that funds do not need to be paid back.
Our advisors are available to guide and assist with any questions or concerns related to the HBP and FHSA, as well as other investment options. Contact us today 613-416-2020