First time Homebuyers Savings account
The federal government's last budget proposal included a new savings plan to help Canadians buy their first home. Along with doubling the federal first-time homebuyer's tax credit, there is a new way to save up to $40,000 for your first home tax-free called the Tax-Free First Home Savings Account (FHSA).
The new program will start in April 2023 and will allow Canadians who are at least 18 to save up to $40,000 for their first home. If eligible, you can make tax deductible contributions of up to $8,000 each year AND you will have up to 15 years to use your savings toward your home purchase. Funds will accumulate tax-free, provide a tax deduction in the year of contribution and are withdrawn tax-free so long as the funds are used toward home purchase.
Who is eligible? There are three important components to qualify:
• You need to be a resident of Canada
• You must be at least 18 years of age (or the age of majority in your region)
• You can't own a home in the year the account is opened or previous fouryears.
You are considered a first-time homebuyer, for the purposes of this plan, if you haven’t owned a home within the last four calendar years. For example, if you bought your first home in 2015 and sold it in 2018 and have been renting or living with parents or a non-spouse ever since, you would be considered a first-time homebuyer again.
What happens if you don't use your tax-free home savings?
If you don't use your Tax-Free First Home Savings Account to buy a home, you can transfer the funds to an RRSP account anytime within 15 years. The transfers will not impact your RRSP’s contribution room. Alternatively, you can withdraw the amount, but the funds would be subject to withholding taxes.
What about the RRSP Home Buyers’ Plan (HBP)?
Right now, you can withdraw up to $35,000 of your RRSP towards a new home (called the RRSP Home Buyer's Plan) tax free. The catch is that with the RRSP Home Buyers Program, you are borrowing from your RRSP and must replace your RRSP funds within 15 years. With the new FHSA, you won't need to replace those funds. Note that you
cannot use both an FHSA withdrawal and a RRSP HBP withdrawal for the same home purchase.