First Home Savings Account (FHSA) in Canada: A Guide for Prospective Home Buyers

Buying your first home will be one of the most important decisions in your lifetime. Rising house prices have discouraged many young new buyers. But there’s still hope for the average Canadian looking to save for their dream home. Introducing the First Home Savings Account! This registered plan is the key to unlocking incredible investing and saving potential that can make home ownership a reality for you.

Let’s look at the following:

  • What is a First Home Savings Account? 
  • What are the major benefits of an FHSA? 
  • Who’s eligible? 
  • Where can you open an account? 
  • What investments can you hold in an FHSA? 
  • How to make a withdrawal? 
  • What happens if you don’t buy or build a house with your FHSA? 

What is a First Home Savings Account?

A First Home Savings Account or FHSA is a registered plan that lets you save for your first home tax-efficiently. You can contribute to your FHSA for a maximum of 15 years and up to a limit of $40,000. The annual contribution limit is $8,000. You can use these funds when you’re ready to for a down payment, or to help fund the building process for your first home. But how is a FHSA better than registered plans you already have? Let’s have a closer look. 

What are the major benefits of an FHSA? 

The main benefit to the FHSA is that it combines the best elements of a TFSA (Tax Free Savings Account) and RRSP (Registered Retirement Savings Plan). The TFSA provides incredible flexibility and doesn’t charge you taxes when you make a withdrawal. The RRSP provides great security in the long term and helps you save on taxes each year. The FHSA does all of that in one! You’re not taxed on any of the withdrawals you make, and you keep all your investment gains just like a TFSA. And by putting money into your FHSA, you may lower your annual taxes the same way as an RRSP. 

Also, if you don’t use all of the money in your FHSA for a home, you have the option to move the funds to RSP, RIF and other FHSA accounts. You have the freedom to decide how to spend your money!

Finally, an FHSA can work together with the Home Buyer’s Plan and First-Time Home Buyer Incentive program to buy your first home even faster. Connect with a Credential Securities and Credential Assent Management Inc. expert for more information on how to use these different investing tools.

Who is eligible for an FHSA? 

Before you can open an account, you need to confirm you qualify. For starters, you must be between 18 and 71 years of age and a resident of Canada. 

Additionally, you need to have first-time home buyer status. This means you have never bought a home before, or you cannot have lived in a home in Canada that you owned or jointly owned over the last four years before starting your application. The same applies for living in a home owned by your spouse or common-law partner. If you meet these requirements, you should be all set to open your FHSA account!

Where can you open an account? 

You have plenty of options to choose from when it comes to where you can open an FHSA. You can open your FHSA with Innovation Wealth in partnership with Credential Securities and Credential Asset Management Inc., another financial institution of your choice, or a trust or insurance company. 

Choosing the best place to hold your investments can be almost as difficult as deciding what to invest in. That’s why it’s important to rely on experts who understand your circumstances and who can guide you in the right direction. At Innovation Wealth in partnership with Credential Securities and Credential Asset Management Inc., our team of experts are here to help and will simplify saving for you. They can provide advice and have all the planning tools you need to open your FHSA and buy your dream home! 

What investments can you hold in an FHSA?

Fortunately, an FHSA account offers a variety of different investing options. Here’s some options you can choose from: 

  • Cash
  • Guaranteed Investment Certificates (GICs)
  • Government and corporate bonds
  • Mutual funds
  • Most publicly traded securities 

How to make a withdrawal?

So, you’ve opened your account, made your investments, and now you’re ready to buy your dream home. It’s time to take advantage of your FHSA to make a withdrawal. There are two types of FHSA withdrawals you can make: qualifying withdrawals (tax-free) and non-qualifying withdrawals.

You can make a qualifying withdrawal from your FHSA if you meet these criteria: - You need a written agreement to buy or build a home in Canada that will be your primary residence.

- You must make the withdrawal within 30 days of buying or building the home, and no later than October 1st of the year after the withdrawal.

- You will need to complete Form RC725 and provide it to your FHSA issuer.

For additional information on these criteria, visit the CRA FHSA withdrawals page or talk to your qualified Credential Securities and Credential Asset Management Inc. advisor.

You can still take out money from your FHSA if you don’t meet the requirements, these are called “non-qualifying” withdrawals. These withdrawals have a tax deducted from them and they’ll be added to your taxable income for the year that you take them out.

What happens if you don’t buy or build a house with your FHSA?

Perhaps your plan was to buy or build a home but that’s no longer the case. That’s okay! You still have options for using this money. The simplest option is to directly transfer funds to an RRSP, RRIF, or another FHSA. This way, you avoid extra tax-related fees, and you can continue to grow your wealth while you decide what you want to save for. 

It’s important to know that you cannot directly transfer funds from your FHSA to any other registered plan including a TFSA. Any transfers you make to any non-RRSP, RRIF, or FHSA plan will be treated as both a taxable withdrawal and a new contribution to your registered plan. Keep this in mind before you decide to transfer your remaining funds outside your FHSA account. 

Your pathway to homeownership

Whether you’re saving for your first home or looking for other ways to use your FHSA funds, the FHSA is a great account that can help you achieve your financial goals. With tax benefits, flexible withdrawals, and investment options, the FHSA is an account that works for you. Want to learn more about how the FHSA can help you? Or ready to open your account today? Contact Innovation Wealth in partnership with Credential Securities and Credential Asset Management Inc. to get started.

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*Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured or guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. Their values change frequently, and past performance may not be repeated. Credential Securities is a registered mark owned by Aviso Wealth. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors, and we recommend that clients seek independent advice from a professional advisor on tax-related matters.

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