We highlighted in our January 2023 post, the Federal government introduced the Tax-Free Home Savings Account (FHSA) in the 2022 budget, and it has since became effective as of April 1st. For the past several months, the Federal Government was rolling out various details about this program and has been updating the terms of these accounts.
Now available, the advisors at The Steele Group, can open an FHSA account our clients. These accounts have been designed for individuals looking to save on a tax-free basis for their first home purchase and Cliff, Mark and Mario can help you determine if this account would be beneficial to you.
Some of the key points about the FHSA:
Age Limits - Can be opened as of age 18 & must be closed by age 71
Amount Limits - $8,000 max contribution per year, to a life-time maximum limit of $40,000
Carryforward Limits - Unused FHSA room can be carried forward, but only two years of contributions can be used in one calendar year ($16,000). It is very important to note that any unused FHSA room can only be carried forward for individuals who currently have an active FHSA account. If you are unsure of the need for a FHSA, you can open an account with a small balance to officially start building carryforward FHSA contribution room.
Options withdrawing funds out of an FHSA
As a first-time home buyer
If applying as a first time home buyer, our office would assist with filling out the government Form RC725, You must be a first-time home buyer as defined by the government of Canada. There is a requirement to have a written agreement to buy or build a qualifying home with the acquisition or construction completion date of the qualifying home before October 1 of the year following the date of the withdrawal. Once all documentation is completed and approved, funds would be transferred to your bank account within 5 business days.
CRA will consider any withdrawals that do not qualify as a first time home purchase as 100% taxable income. It is highly recommended that you speak to your financial planner prior to submitting any withdrawal requests from the FHSA account.
While the contributions to an FHSA account are treated in a similar manner to an RRSP contribution, it does not use up your current RRSP contribution room. However should you no longer require an FHSA, you can roll over these assets to an RRSP. At this stage you would require RRSP contribution room. This would not count as an RRSP contribution as you would have previously collected the tax benefit when the assets were first deposited into the FHSA.
More information on FHSA
Government of Canada
January 2023 TSG News Post
Please feel free to reach out to our team if you are interested in learning more or opening an account.