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On April 1, 2023, the new First Home Savings Account (FHSA) came into existence. The FHSA aims to help prospective first-time home buyers save up for a downpayment faster, by providing a new tax-free savings account.
First Home Savings Account: How it Works
- Prospective homebuyers can contribute up to $8,000 of tax-free savings each year
- There’s a lifetime contribution limit of $40,000
- If you don’t contribute the full amount each year, you can carry forward a maximum of $8,000 to use the following year.
- The First Home Savings Account has a maximum participation period of 15 years, so you have to transfer the money and close the account 15 years after opening it to avoid being taxed.
- The home must be a principal residence – the FHSA cannot be used to purchase an investment property.
- You must move into the home within one year of purchasing it
- If you need access to the funds for any reason other than buying a first home, you’ll be taxed on the withdrawals.
- Canadian banks will be rolling out the First Home Savings Accounts over the next few months.
Eligibility for the FHSA:
- Canadian residents who are at least 18 years old
- You cannot have owned a home at any time in the year that the account is opened, or during the preceding four calendar years.
- Common-law partners and spouses can’t share accounts – only the person named can make contributions and transfers
- If an account holder moves out of the country, they cannot make qualifying withdrawals to purchase a home and may be subject to taxes.
The First Home Savings Account is a great way for first-time buyers to increase the size of their downpayment, tax-free. If, like most people, your taxes are withheld by your employer, you’ll reap the benefit of contributing to the FHSA when you file your taxes the following year. For example, if you contribute $8,000 in 2023 and are in a 40% tax bracket, you’ll get a tax refund of $3,200 when you file your taxes in 2024, giving you more money to add to your future downpayment or to help pay closing costs.
You can see complete details of the FHSA program here.
Other Programs to Help First-Time Buyers
In Ontario, there are other first-time buyer programs and incentives, including:
- The Home Buyer Plan (HPB) which allows you to use your RSP savings to fund your first home
- Partial Land Transfer Tax Rebates (Ontario and Toronto)
- The First Time Home Buyer Credit, which provides up to a $750 tax refund
- The CMHC First Time Buyer Incentive Program (a co-ownership arrangement that can increase the size of your downpayment by 5% for resale residential properties and 10% for new construction homes
You can read all the details about those first-time home buyer programs here.