Have you ever dreamt of buying your first home? The government has some good news for you! In Budget 2022, they announced a new plan called the Tax-Free First Home Savings Account (FHSA). This plan will help people like you save money to buy their first home.
The FHSA is similar to a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). You can save up to $40,000 without paying taxes on that money. Each year, you can add up to $8,000 to the account. The best part is that when you're ready to buy your first home, you can use the money you saved, including any interest earned, without having to pay taxes on it.
Here are some important things to know about the FHSA:
To open an FHSA, you must be a Canadian resident, at least 18 years old, and have never owned a home before.
You can have more than one FHSA, but the total amount you contribute to all your FHSAs cannot be more than the yearly and lifetime limits.
You can invest your FHSA money in different things like stocks, bonds, and mutual funds. But there are some rules to make sure your investments are safe and fair.
If you don't use all your yearly contribution limit, you can carry it forward to the next year. For example, if you save $5,000 in 2023, you can save up to $11,000 in 2024.
To use the money in your FHSA to buy a home, you need to meet certain conditions, like having a written agreement to buy or build a home and planning to live in it within a year.
If you don't use the money in your FHSA to buy a home, you can transfer it to an RRSP or Registered Retirement Income Fund (RRIF) without paying taxes.
If you're married or have a common-law partner, you can't contribute to their FHSA or claim a tax deduction for it. However, you can use money given to you by your spouse to contribute to your own FHSA.
If your marriage or common-law partnership ends, you can transfer money from your FHSA to your ex-partner's FHSA, RRSP, or RRIF without any tax consequences.
If you pass away, your spouse or common-law partner can become the new FHSA holder if they meet the eligibility criteria. If not, the money in the FHSA can be transferred to their RRSP or RRIF, or withdrawn and taxed.
Here is a sample from the government website.
Alyssa contributes $10,000 on November 15, 2023 and does not withdraw it. This contribution exceeds Alyssa's annual FHSA contribution limit by $2,000.
Alyssa would be subject to an over-contribution tax of $40 (1% × $2,000 × 2 months) when filing her 2023 tax return in 2024. The $2,000 amount would cease to be an over-contribution on January 1, 2024, as a new annual limit of $8,000 would be available.
Alyssa would be allowed to deduct $8,000 from her 2023 net income. Presuming Alyssa did not make a qualifying withdrawal between November 15, 2023 and January 1, 2024, she would be allowed to deduct the additional $2,000 from her 2024 net income.
Disclaimer: This is a new savings account. Some banks have not fully figured out how the accounts will work yet as their individual website information varies from the government website terms and conditions. The account is set to launch 01 April 2023. So, start saving now, and you'll be one step closer to owning your dream home! If you have any home buying or savings questions please let me know. www.emilycallme.com