First Home Savings Account

A Complete Guide to The New First Home Savings Account (FHSA)

iA Private Wealth is now offering the new First Home Savings Account.

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What are the benefits of an FHSA?

An FHSA combines the tax deductions of an RRSP with the tax-free earnings of a TFSA. Meaning contributions into an FHSA are tax deductible, and as long as you make a qualifying withdrawal, the withdrawals are tax free.

Who Qualifies for a FHSA?

To open a FHSA you must meet all of the following criteria.

19 years of age in BC (18 in some provinces), AND
Younger than 71 Years of age, AND
Resident of Canada, AND
A first-time home buyer*

*For the purposes of opening an FHSA you are considered a first-time home buyer if you meet all of the following criteria:

In the year you opened the account you have not lived in a qualifying home that you, or your common law partner, owned or jointly owned.

and

In the previous four calendar years of opening your FHSA you have not lived in a qualifying home that you, or your common law partner, owned or jointly owned.

This means that even if you or your spouse have owned a home in the past, after five calendar years of selling you will become eligible to open a FHSA.

What are the Contributions Limits?

You may contribute $8,000 a year, up to a lifetime maximum of $40,000. Unused contribution room may be carried forward, up to a maximum annual contribution of $16,000.

There are no spousal contributions and only the account holder can claim tax deductions. Unlike RRSPs, you can only claim contributions made in that calendar year, and cannot claim the deductions in the first 60 days of the following year. However, like an RRSP, your unused tax deductions can be carried forward.

You can also contribute to a FHSA through a direct transfer from an RRSP or RRIF. These transfers cannot be claimed as tax additional deductions, as the tax deductions were already accounted for when the funds were contributed to the RRSP.

Spousal RRSP contributions can be transferred as well. However, they cannot be transferred in the same year as the spousal contribution, or if the contributions were made in the two previous calendar years.

Any transfers from an RRSP will not restore you or your spouses RRSP contribution room.

What is the Participation Period for a FHSA?

The participation period begins when you open your first FHSA and ends on December 31st of the year in which the earliest of the following events occur.

The 15th anniversary of opening your FHSA.
You turn 71 years of age.
The year following your first qualified withdrawal.

To avoid tax consequences, it is important to close our FHSA before maximum participation period ends. However, on or before your maximum participation period, generally you can transfer the account, on a tax deferred basis into your RRSP, or RIF. This will not affect your RRSP contribution room, but you will lose the ability to take advantage of the tax-free withdrawal, instead further deferring the taxes.

How are the Funds in an FHSA Accessed?

To take advantage of the tax-free aspect of the FHSA, you must make a qualifying withdrawal or transfer the money into an RRSP, assuming you have the contribution room.

A qualifying withdrawal must meet the fallowing requirements:

You must be a first-time home buyer. *
You must have a written agreement to buy or build a qualifying home with the acquisition or construction date of the qualifying home before October 1st of the year following the date of withdrawal.
You must have acquired the qualifying home more than 30 days before making the withdrawal.
You must be a resident of Canada from the time that you make your first qualifying withdrawal from one of your FHSAs until the earlier of the acquisition of the qualifying home, or the date of your death.
You must occupy or intend to occupy the qualifying home as your principal place of residence within one year after buying or building it.

*See previous definition of first-time buyer.

Can there be a beneficiary? Or Successor?

The CRA allows the FHSA to have the same beneficiary and successor roles as a TFSA*. However, to avoid tax consequences in the event of a passing, the beneficiary (or successor) must be a qualifying individual and have the available contribution room in their FHSA. Otherwise, they will have to transfer the money into an RRSP (assuming they have the contribution room) or withdraw the money and claim it as income.

*Each province and territory must review the naming of a beneficiary on the FHSA and must pass this into law, at the provincial level (except for Quebec residents, who must name a beneficiary in their will).

For more information and to speak to an expert, please contact us.