The Tax-Free First Home Savings Account (FHSA) is a registered savings plan in Canada designed to help first-time homebuyers save for a down payment. It combines features of both an RRSP and a TFSA, offering tax-deductible contributions and tax-free withdrawals when used for a first home purchase.
Key Features and Benefits of the First Home Savings Account (FHSA):
- Tax-deductible contributions – Similar to an RRSP, contributions to your FHSA will reduce your taxable income, keeping more money in your pocket!
- Tax-Free Growth – Like a TFSA, any investment growth within the account (interest, dividends, capital gains) is tax-free.
- Tax-Free Withdrawals – When used for purchasing a first home, withdrawals (including investment gains) are completely tax-free.
- Contribution Limit – You can contribute up to $8,000 per year, with a lifetime maximum of $40,000.
- Income Earned - Any income earned in your FHSA(s) (for example, investment income and capital gains) will not count toward your FHSA participation room.
- Unused Contribution Room – The unused annual contribution room can be carried forward (up to a max of $8,000 per year).
- 15-Year Lifespan – The FHSA can stay open for up to 15 years or until the end of the year you turn 71.
- Must Be a First-Time Homebuyer – You qualify if you or your spouse haven’t owned a home where you lived in the last four years.
- Unused FHSA Funds – If you don’t end up buying a home, the funds can be transferred tax-free into an RRSP or RRIF without affecting your RRSP contribution room.
How It Can Help First-Time Buyers
- Boosts Savings Faster – Combining tax-deductible contributions and tax-free withdrawals helps maximize your savings potential.
- Stacking with Other Programs – The FHSA can be used alongside the Home Buyers’ Plan (HBP), which allows withdrawing up to $60,000 from your RRSPs for a home purchase.
Who Should Use It?
- Anyone planning to buy their first home within the next 15 years should take advantage of this incredible resource and enjoy the tax savings, as well!
- People looking for tax-efficient savings with both upfront tax deductions and tax-free withdrawals - bonus!
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