March 21, 2024 | Posted by: Timothy Noor
What is a First Home Savings Account (FHSA)
A First Home Savings Account(FHSA) is a savings account from the federal government. It allows individuals to save money for their first home purchase, providing tax benefits and other incentives to help them afford a home. FHSAs are typically designed to be flexible, easy to use, and tax-free with features like automated transfers from your regular chequing account and the ability to track your progress toward your goal easily.
The tax-free FHSA is a new type of account that works much like an RRSP or TFSA because it combines the features of both. For example, when you contribute to your FHSA, your taxable income will decrease by the same amount for that year. Additionally, when you withdraw from your FHSA, that money will be tax-free. If you are thinking about buying your first home, an FSHA can be a great tool to help you achieve that goal.
Eligibility for the FHSA
The federal government created FHSAs as a saving tool to encourage Canadians to put away more money towards buying their first home and prepare themselves financially for this major life change.
Some of the eligibility requirements include:
How does the FHSA work?
Your FHSA helps you keep your home ownership goals on track by letting you earn tax-free income from investments you hold in the account. Here’s how.
It’s important to note that your FHSA will not remain open indefinitely. It will close on December 31st of the year in which either.
FHSA vs Home Buyers’ Plan
Currently, the Home Buyers’ Plan (HBP) allows first-time homebuyers to withdraw up to $35,000 tax-free from their RRSP to purchase or build a new home. However, you must pay that money back to your RRSP within 15 years. In an FHSA, you are not required to pay back the funds withdrawn toward the purchase of a qualifying home.
As a first-time homebuyer, you can use FHSA and HBP withdrawals toward a qualifying home purchase.
If you’re considering purchasing your first home or are in the process of doing so, an FHSA can be an excellent way to help you achieve this goal while enjoying all its benefits. Some of the advantages of the FHSA include tax-deductible contributions, tax-free earnings, and the ability to use funds from your account at any time for anything related to your home purchase.
Whether you’re ready now or in the future, consider opening an FHSA to help you on your journey to homeownership.
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