Owning a home has seldom been more challenging. With homeownership rates in decline from peaks reported to Statistics Canada in 2011, the government moved to introduce first home savings accounts (FHSAs), first making these accounts available to consumers in 2023.

Although the vehicle is similar in some ways to other registered accounts – funds deposited into an FHSA are deductible from income – it differs in a few notable ways as well.

First Home Savings Account (FHSA) 

  • A first-time home buyer is someone who did not, at anytime in the past five years live in a qualifying home they or their spouse owned.
  • An account may be set up while single but cannot be setup if the client or their spouse already owns a qualifying home.
  • To open an FHSA the client must be over 18 years of age but under age 71 and a resident of Canada.
  • Those opening an FHSA are given $8,000 in contribution room, each year. Although clients can open more than one FHSA, this participation room applies to all of the client’s FHSAs together – the total amount contributed cannot exceed the client’s participation room. The maximum participation room available is $40,000. 
  • A FHSA may only remain open for 15 years.
  • Income earned by your FHSA does not impact your FHSA participation room.  
  • Overcontributions are taxed at a rate of one per cent each month on the highest excess amount in the FHSA in that month. The taxes will apply until the excess FHSA amount is eliminated with new participation room or when the client removes the excess amount from their FHSA.
  • Only the FHSA holder can participate directly in their own FHSAs and claim the contributions as a tax deduction.

Funding the FHSA 

  • Direct transfers from a registered retirement savings plan (RRSP) to an FHSA will reduce unused FHSA participation room. It does not restore unused RRSP deduction room. The amounts transferred are also not deductible.
  • Direct transfers from other registered plans are not permitted.

Withdrawals 

  • A FHSA withdrawal is not required to be included in the client’s income if it is a withdrawal to buy a qualifying home.
  • Clients must have a written agreement to buy or build a qualifying home for acquisition or completion before October 1 in the year following the date of the withdrawal.
  • Those withdrawing from their FHSA must not have acquired the qualifying home more than 30 days before making the withdrawal.
  • Clients must occupy or intend to occupy the home as a principal place of residence within one year of buying or building it.

Other transfers out of a FHSA 

  • Generally there are no immediate tax consequences if the FHSA funds are directly transferred to an RRSP or a registered retirement income fund (RRIF), or a direct transfer to another FHSA owned by the client.

Source: Canada Revenue Agency (CRA).

This article is a Magazine Supplement of the July issue of the Insurance Journal.