Budget 2022 had proposed to create the tax-free First Home Savings Account (FHSA) to help first-time home buyers save up to $40,000 for their first home.
Similar to an RRSP, contributions to an FHSA would be deductible against income. However, in contrast to an RRSP, any income earned in an FHSA along with any qualifying withdrawals from an FHSA that were made to purchase a first home would be non-taxable, similar to how income and withdrawals of a TFSA are treated.
Some important features to note include:
- There will be a lifetime limit on contributions of $40,000, with an annual contribution limit of $8,000.
- Any unused annual contribution room will not be carried forward, meaning that if you don’t contribute the $8,000 one year, you are not able to contribute $16,000 the next year. Each year, the maximum will only be $8,000 regardless of what you contributed in prior years.
- Any withdrawals for purposes other than to purchase a first home would be taxable.
- If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of opening an FHSA, their FHSA would have to be closed. At that time, you would have the option to transfer any unused funds into an RRSP, if you had sufficient RRSP contribution room. If you did not transfer into an RRSP, the amount in the FHSA would be taxable at the time it is closed.
- The government will work with financial institutions to allow individuals to open an FHSA and begin making contributions in 2023.
In addition to the introduction of the FHSA, the government also announced an increase to the first-time home buyers get tax credit in Budget 2022, where first-time home buyers can now get relief of up to $1,500 on acquisitions of a qualifying home made on or after January 1, 2022. This us up from $750 prior to 2022.