Increasing house prices have been causing many folks who are hoping to purchase their first homes a lot of stress these days. In response, the Government of Canada has recently created the First Home Savings Account (FHSA) which allows first-time home buyers to save for their down payments tax free. I sat down with Andre Deleo, President and Principal Broker with Morgix, to learn more about it.
Is the FHSA a new program?
Andre: Yes, it only became available on April 1 of this year.
Who is eligible for an FHSA?
Andre: There are a few rules around who can open an FHSA. You must be between 18 and 71 years old, a current resident of Canada, and you can’t have lived in a home you own in the last four years. There is no age maximum so even those later in life that have not been able to get into the market yet can still take advantage of the account benefits.
Is there a limit on the amount folks can put into their FHSA?
Andre: Yes, there is an annual contribution limit of $8,000. Unused contributions can be carried forward to the following year. There is also a lifetime contribution limit of $40,000.
What do you see as the main benefits of an FHSA?
Andre: An FHSA can help you to make a plan and intentionally save for a down payment while reducing the amount you pay income tax on. It also allows you to grow your savings tax-free with investments from your FHSA account. In some cases, you might want to use the allowed carry over amounts to reduce your taxes in the future if you are expecting an increase of income soon. Even though FHSAs expire after 15 years, which might not be long enough for some people, you can convert it to an RRSP without affecting your RRSP contribution limits.
Are there any cons?
Andre: The biggest drawback to the program is that it is only available to you if you haven’t bought a home. Unfortunately, the program also caps at $40,000, which can be lower than some down payments. You also cannot combine an FHSA with the Home Buyers Plan. FHSAs are not designed for someone who is looking to purchase in the next one to two years but is best for someone who is planning five or more years in advance.
How is an FHSA different from other programs like Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Plan (RRSP)?
Andre: Like an RRSP, contributions to an FHSA are deducted from your income tax. TFSA contributions are not. FHSAs have an expiration date: they must be closed in no more than 15 years from when they were opened while TFSAs and RRSPs do not expire. There are strict rules for withdrawing from an FHSA and an RRSP, so if you want to have easier access to your savings you might want to opt for a different type of account.
For more information about down payments, mortgages, debt consolidation or to schedule a consultation with someone from Andre’s team, visit MORGIX License #13399 online, email them at [email protected], or call 1-844-466-7449. Morgix is located at 202-18075 Leslie Street in Newmarket.