Benefits of a First Home Savings Account (FSHA)

FHSA First Home Savings Account can be used very strategically to purchase you first home in Canada, and use pre-taxed funds for the down payment with no repayment requirement. Read on below for more information.

Overview:

• Similar to the RRSP contributions, eligible contributions to your FHSA reduce your taxable income for the year of the contribution or a future tax year. There is a limit to how much you can contribute into your FHSA annually, and there is a lifetime contribution limit of $40,000.
• Just like the TFSA and RRSP investment vehicles, any growth of the funds/investments inside the FHSA is tax-sheltered.
• Unlike the Home Buyers’ Plan (HBP), funds withdrawn for a first time qualifying home, do not need to be repaid back into the account.
• Both spouses can use there individual FHSA account balances when purchasing a qualifying home, doubling the tax savings!
• The FHSA and HBP accounts can be used together on purchase of a first time qualifying home.

Who can Open an FHSA?

You must meet the following conditions:

• You are 18 years or older but 71 years or younger as of December 31 of the year you open the FHSA.
• You are a resident of Canada
• You did not live in a qualifying home as your principal place of residence that you owned or jointly owned in the current calendar year or in the previous four (4) calendar years

How much you can contribute into the FHSA?

• Your contribution room increases by $8,000 per calendar year starting the year you open the account.
• Any unused contribution room is carried forward.
• The life-time contribution limit caps at $40,000. The limit of $8,000 increase over five (5) years.
• The contribution is 100% tax deductible just like an RRSP.
• There is a tax penalty for overcontributions of 1% per month.

What is a qualifying withdrawal from FHSA?

• If you purchase a qualifying home as a first time home buyer, the funds from the FHSA can be withdrawn tax-free and put towards down payment of the home.
• No repayment is required back into the FHSA like the HBP.
• There is no minimum time period the funds must stay inside the FHSA.
• Form RC725 should be completed prior to withdrawal and given to financial institution.
• The FHSAs should be closed by the December 31 in the year of the qualifying withdrawal.
• Non qualifying withdrawals are not tax-free and will be included in taxable income with withholding taxes.
• It is possible to transfer from your FHSA to RRSP with no immediate tax consequence using RC721.
• FHSA deductions are reported on Schedule 15 – FHSA Contributions, Transfers and Activities with your personal tax return each year.
• Your notice of assessment will report unused room balance or CRA My Account.

Amounts you cannot deduct in a FHSA

• There is no first 60 days rule like RRSP contributions to be deducted on tax return.
• Excess contributions into the FHSA are not tax deductible.
• Any contribution after the first qualifying withdrawal are not deductible any longer.
• Transfers from RRSP to FHSA are not deductible in any year.
• Investment losses that occur inside the FHSA.
• Administrative fees or brokerage fees inside the FHSA.
• Interest you paid on funds borrowed to contribute to the FHSA.