Buying your first home with a FHSA?

Feb 18

You may be asking yourself ‘What the heck is an FHSA and how can I use it to buy my first home?’. Don’t fret, we will discuss the nitty gritty of the proposed FHSA plan and how you can use that, alongside an FHBP and TFSA to purchase your first home. How’s that for word soup?

Let’s review the basics to give you a better idea of how each vehicle may help you obtain your financial goals

Let’s look at a First Home Savings Account (FHSA).

What is it?

Tax Free Savings Account
Proposed to start in 2023
Eligible contributors can contribute up to $8000 per year
Lifetime Maximum of $40 000 per person

Eligibility

Canadian Resident
Be at least 18 years old
Not lived in a home owned by the contributor in the year that the account is opened or the previous 4 years

Contributions

Contributions are tax deductible like RRSP contributions
Growth inside the FHSA will be taxed deferred similar to RRSP and TFSA
Funds withdrawn to purchase a home are not taxed, like TFSA
If in any year contributor does not contribute $8000, the unused contributed does not carry forward

Usability

Account holders will have 15 years from account opening to purchase a home
Two people can pool funds in FHSA together to purchase a home
Account must be closed within one year after using funds to purchase a home
Withdrawals for any purpose other than purchasing a first home will be fully taxable within the year of withdrawal

Now let’s check out what the First Home Buyers Plan is (FHPB).

What is it?

A certain amount per person can be withdrawn from your RRSP without incurring tax.
Up to 35k/70k (single/couple) withdrawal for Down Payment
Withdrawal Tax-Free *Required to repay the total amount over the next 15 years

For a primer on what a TFSA and RRSP are, I break them down in detail here.

Now let’s look at how they compare