Tax-free First Time Home Savings Account
By Cole Seabrook
Financial Advisor, O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd.
The Canadian Government is introducing a new investment account to help young Canadians achieve their first-time house purchasing goals. Have you heard about the Tax-Free First Home Savings Account (FHSA)?
The Canadian Government is planning on releasing the FHSA in 2023. The intention is to help Canadians save for the purchase of a home while providing tax benefits and tax relief when it comes time to withdraw the funds for the purchase of a home. Let’s highlight the degree of flexibility the account will bring to prospective homebuyers.
Many First-time homebuyers have taken advantage of the ability to access up to $35,000 of their Registered Retirement Savings Plan (RRSP) to purchase their first home. This is a tax-free benefit that they can use to help with their down payment. This provides them with the taxable deduction when money is contributed to the RRSP and grants them access to a portion of a down payment.
The one catch with this program is that once funds are taken from their RRSP to help with the down payment of a house, they must pay back the money borrowed from their RRSP within 15 years from the withdrawal date. This can sometimes create a budgeting issue. The individual has a mortgage as well as a repayment to their RRSP.
In the past, there has been much debate surrounding saving for a down payment in a Tax-Free Savings Account (TFSA) as opposed to using a Registered Retirement Savings Plan. As each individual has a different financial situation, at the end of the day, it depends on many variables such as an individuals taxable income, contribution room to said account, and budget. This is where the Tax-Free Fist Home Buyers Account will benefit young individuals.
The FHSA account has the benefits of both a Tax-Free Savings Account and a Registered Retirement Savings Account where contributions to the FHSA are tax deductible and the withdrawal is tax-free. The beauty of the FHSA account is that you do not have to pay back the personal loan into the FHSA and the withdrawal comes to the account holder tax free.
Like TFSA’s and RRSP’s, there will be contribution limits. The initial thought is said to be $8000.00 annually with the ability to carry forward room. This will have a major impact for young individuals and couples when it comes time to save for the purchase of their first home.
We are always open to questions, if you would like to learn more about the FHSA please feel free to reach out! Follow us on Facebook @OFarrellWealth or visit ofarrellwealth.com.
Cole Seabrook is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact him at 613.258.1997 or visit ofarrellwealth.com to discuss your circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
