The second is the tax-free savings account (TFSA), launched in 2009. It’s not specifically designed for home ownership, but it can certainly be used for saving for real estate, or for other big financial goals. In the Chevreau household, we’ve always looked at TFSAs as a way to minimize taxes across the family unit. And, as we’ll see, the FHSA should work like a TFSA and RRSP in some ways.
Let’s assume one or more of your adult kids have decided to take the plunge into buying a principal residence, given the confluence of lower prices and this new program.
Who qualifies for the FHSA?
To qualify for the FHSA, you must be 18 years old, Canadian and be a first-time home buyer, but can only tap the FHSA once. You can contribute $8,000 each year, with a lifetime limit of $40,000. An immediate benefit is that contributions create a tax deduction, like an RRSP does. However, Roberts cautions, “unlike RRSPs, contributions made within the first 60 days of a given calendar year cannot be attributed to the previous tax year.”
On his blog, Mark Seed says an FHSA account can stay open for 15 years, or until the end of the year you turn 71, or until the end of the year following the year in which you make a qualifying withdrawal from an FHSA for the first home purchase—whichever comes first.
Seed addresses “the elephant in the room” that is: What happens if you open an FHSA account but ultimately don’t buy a home?
No problem, he writes. “Any savings not used to purchase a qualifying home could be transferred to an RRSP or RRIF (registered retirement income fund) on a non-taxable transfer basis, subject to applicable rules. Of course, funds transferred to an RRSP or RRIF will be taxed upon withdrawal.”
While Seed thinks Ottawa would have been better advised to tweak the existing TFSA and HBP programs instead of creating the new registered account (and yet another new acronym!), he concludes the FHSA is “pretty great stuff” for young people looking to buy a first home.
Equally enthused is CFP and RFP Matthew Ardrey, wealth advisor and portfolio manager with Toronto’s TriDelta Financial. He says: “The FHSA is the home savings plan we were all dreaming of when we first got the HBP. Combining the best aspects of the RRSP, tax deductions for contributions, and the TFSA, tax-free qualifying withdrawals, this can be a game changer for the next generation of homebuyers in Canada.”
