Canadians could soon get some assistance when it comes to buying a home when the federal government’s Tax-Free First Home Savings Account (FHSA) launches.
The program was announced in the 2022 federal budget and is aimed at helping first-time homebuyers jump into Canada’s pricey housing market.
Last week, the Department of Finance released its draft legislative proposals with additional details on the new account.
Here’s what you need to know about the savings vehicle that’s expected to launch sometime next year.
WHAT'S A FHSA?
The FHSA is a mix between a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA), but it’s specifically geared towards saving for a house.
Contributions to an account would be tax-deductible and withdrawals to buy a home would be non-taxable.
In order to qualify for an account, an individual must be a Canadian resident between the ages of 18 to 71 and a first-time homebuyer.
There will be an $8,000 annual contribution limit, but unused portions of a yearly contribution can be carried forward into the next year.
The account can remain open for 15 years or until the person turns 71, whichever comes first.
INVESTMENTS AND WITHDRAWALS
Canadians can have the same kind of investments as a TFSA, in their First Home Savings Account. This means you can hold assets such as publicly traded securities, mutual funds and bonds.
However, when it comes time to withdrawing funds from the FHSA, there are a few requirements that must be met.
The property the funds are being used to purchase has to be in Canada, the taxpayer has to intend on living in that house as their principal residence and they need to have a written agreement to buy or build a qualifying home before Oct. 1 of the year following the withdrawal.
It's worth noting that anyone who has funds in both a FHSA and the Home Buyers' Plan wouldn't be permitted to make withdrawals from both accounts for the same home purchase.
ENOUGH FOR A DOWN PAYMENT?
Tim Cestnick, co-founder and CEO of Our Family Office, said the FHSA was a great idea from the federal government, but he doesn’t know how much it will help the average Canadian buying a home.
“Forty-thousand dollars is not going to be enough to really act as a down payment in most cases,” Cestnick said in a phone interview Tuesday.
“Most of the time you're going to need to put down 10 per cent and there’s not too many homes that you can buy for $400,000 in Canada right now, it's certainly in the major cities like Toronto and Vancouver, where it's going to be tough to save enough for a full down payment.”
However, Cestnick said all first-time homebuyers should think of setting up an account, regardless if they end up using it.
“I think it's a no brainer for first-time homebuyers to set up the account because it doesn't hurt you in any way,” Cestnick said.
“You can pull money out tax-free if you buy a home, if you don't, that money goes into your RRSP and those are both good options.”