Aspiring Homeowners: Meet the FHSA

There is good news for those aspiring to purchase their first house, The First Home Savings Account (FHSA) has officially  come into effect as of April 1st. This account offers prospective first-time home buyers the ability to save up to $8,000 a year up to a maximum of $40,000 tax free across their lifetime. This account is like a Registered Retirement Savings Plan, the contributions made would be tax deductible. As well as a Tax-Free Savings Account (TFSA) income gain that are made inside the account as well as withdrawals would be tax free. Here is what aspiring homeowners need to know about the FHSA.

Who is eligible?

 To be able to open a FHSA you must:

• Qualify as a first-time home buyer, meaning that, you did not own a qualifying home that you or a spouse or common law partner, have lived in anytime within the year that the account was opened or during the previous four calendar years.

• Be at least 18 years old.

• Be a resident of Canada.

You can keep the FHSA open for up to 15 years or when you turn 71 years of age whatever comes first.

What types of investments can an FHSA hold?

Investments permitted within The FHSA are similar as TFSAs, these include:

• Publicly traded securities

• Government and Corporate bonds

• Guaranteed investment certificates (GIC)

• Mutual Funds

Contributions

Over your lifetime you can contribute up to 40,000 dollars, with the yearly contribution limit set to $8,000.

Similarly to  TFSAs or  RRSPs

• over contributions are taxed. The amount taxable is dependant upon the amount of time ( months) that the account was over that limit, the amount is 1% to the highest amount  that was present within that month

• You can defer the deduction to future years.

Unlike RRSPs:

• Contributions that are made within the first 60 days of the calendar year cannot be attributed to the pervious tax year.

If you overcontribute there is no need to worry, there is several ways that this problem can be delt with, Firstly, you can wait until the following year to gain more contribution room to absorb the excess from the years prior. You can also request that the excess amount that is equal to the overcontribution be transferred to the account holder or transferred to his or her RRSP.

Withdrawals

To ensure that withdrawals that are made from this account are non taxable they need to meet the following conditions:

• Funds are used to Purchase a qualifying home: A housing unit that is located within Canada.

• Must be a first-time home buyer at the time of the withdrawal. More specifically the tax payer could not have owned a home that they have lived in at any time during the period of the calendar yar before the withdrawal is made

Assuming that you meet the qualifying withdrawal conditions, the entire amount of the FHSA can be taken out Tax free ether in a single withdrawal or in a series.

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The Last word

For younger Canadians looking to become homeowners, this new savings account is a no brainer. The FHSA acts as an RRSP- TFSA hybrid, that provides a tax deduction on the contributions that are made, and the ability to withdrawal those funds tax free when they are used to purchase a first home. In conclusion the new FHSA is an excellent savings/ investment tool that can help aspiring homeowners achieve their dream faster, with greater financial ease. Account openings should be available by this coming fall, speak to your advisor about opening your FHSA today. Click here to schedule your  free 30-minute consultation.

Reference

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html

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- Mitchell Cathcart, Marketing Assistant, Kondwelani Kalinda, Licensed Assistant & Financial Planning Associate and Grant White, Portfolio Manager at Endeavour Wealth Management with iA Private Wealth, an award-winning office as recognized by the Carson Group. Together, Endeavour Wealth Management provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Mitchell Cathcart Marketing Assistant, Kondwelani Kalinda, Licensed Assistant& Financial Planning Associate and Grant White, Portfolio Manager for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.  

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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