Why Start a First-Time Home Buyer Savings Account?
The Government of Canada recently announced plans to create and launch a new type of tax-advantaged savings account designed to help first-time home buyers.
The First Home Savings Account (FHSA) is intended to make purchasing a first home easier for Canadians across the country. As real estate prices continue to increase, the Government is looking for opportunities to support home ownership. Offering tax breaks to first-time buyers is one part of that strategy.
The account won’t be officially introduced until 2023. However, learning about what an FHSA can offer now may help you take better advantage of it next year — or whenever you decide to start saving for a home.
Let’s take a closer look at what the FHSA is and how it’s expected to work.
What Do We Know About the First-Time Home Buyer Savings Account?
Don’t worry about missing out on a reduced tax burden just yet. The FHSA is not yet available just yet at Innovation. You have time to learn more about this new account and consider how it could fit into your personal finances.
Defining Features of an FHSA
An FHSA has these key qualities:
- It’s designed to help you make a down payment on a first home with a long-term savings strategy.
- It works along with your home loan — it doesn’t replace or eliminate the need to get a mortgage.
- It has a maximum savings cap of $40,000.
- The annual contribution limit for the account is $8,000.
- You have 15 years to save money, and then use those funds to help purchase a home.
- You can place more than just cash into the account.
Global News highlights two key similarities between the FHSA and some existing tax-advantaged accounts:
- As is the case with a Registered Retirement Savings Plan (RRSP), the FHSA will feature tax-deductible contributions. You can reduce your tax burden by contributing directly to your FHSA.
- Withdrawals from this new type of account for the intended purpose — to purchase a home — are not taxed. This is the same benefit enjoyed by users of Tax-Free Savings Accounts (TFSA).
Advisor’s Edge explains that even if your plans for purchasing a home don’t work out or you don’t use the full amount saved, you won’t lose the remaining money. You can transfer the remaining balance to your RRSP, or to a Registered Retirement Income Fund (RRIF). Alternatively, you can pay taxes on the money saved and then use it freely.
Who can use an FHSA?
What restrictions do we currently know about when it comes to FHSA's?
- You must be an adult — age 18 or older.
- You cannot open the first-time home buyer savings account if you owned a home at any point in the previous four calendar years, the Financial Post says.
There are no major age or location restrictions related to the FHSA, at least currently. The account had originally been planned with an upper age limit of 40, but that was eventually removed by the Government.
Similarly, the account can be used across the country. A first-time home buyer in Calgary or Edmonton will have the same advantages as a first-time home buyer in Manitoba, for example. And a first-time home buyer purchasing a condo can expect the same benefits as one buying a standalone home. It seems that any type of residential property is in play.
All you’ll need to do is fill out the first-time home buyer form — the paperwork to start a new FHSA — and share any necessary details with your financial institution during that process.
Planning to Buy Your First Home
We’re planning to offer the FHSA when this account is officially established and made available by the Government of Canada. It’s all part of our broader efforts to support affordable home ownership.
As you start to consider purchasing a home, we’ll be there to help! We offer a wide range of mortgage options that meet the diverse needs of our members. That includes a first-time home buyers’ mortgage, designed especially for your first home purchase.
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