If you’re looking to buy your first home, you know that it can be hard to afford. That’s why the federal government introduced a new registered plan that can help. The Tax-free First Home Savings Account (FHSA) is designed to help you to set aside money to buy your first home.
It can work especially well for younger people who are striving to come up with a down payment in a challenging housing market and a climate of high inflation and rising interest rates.
The FHSA allows you to enter the housing market with a savings account that combines the best aspects of two other registered plans:
the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). Since it’s geared towards home savings, it doesn’t replace either of these plans, but it serves serve as another means of reaching your home buying goal.
To be eligible for a FHSA, you need to be a Canadian resident between the ages of 18 and 71 or the age of majority in your province and, of course, be a first-time home buyer. You and your partner can also combine FHSAs.
Putting In The Money
Your contributions can be tax-deductible, just like they are with an RRSP. And, when you make a qualified withdrawal toward your home, it is tax-free, like a TFSA. With an FHSA, the money you’re saving grows with interest and you’re also saving on taxes, so it’s a win-win.
Contributions can be up to $8,000 a year for up to 15 years, which means, in total, you can save up to $40,000 for a down payment on your first home.
What if you don’t save as much as you are allowed each year? Don’t worry. You can carry over the unused room to the next year. Let’s say you save $5,000 this year. The following year, you could contribute up to $11,000.
You can invest the money that you put into your account in GICs, mutual funds*, exchange-traded funds (ETFs), stocks* and other qualifying investment items.
