The FHSA - Key information
Buying a home is an important investment that can lead to one of your best investments for life. There are many potential buyers, but there are also many who are having trouble getting the down payment they need for such a large real estate purchase, especially with rising property prices.
Since the last election campaign, the Liberal government, under the leadership of Justin Trudeau, had mentioned the possibility of introducing an RDSP. This registered program would be dedicated to first-time buyers under the age of 40 to help them access their first home. However, the idea of the RDSP was abandoned and replaced by the FHSA or tax-free savings account for first-time home buyers. The FHSA would be in place as of April 2023 and has certain features.
The FHSA : what does it consist of?
The Tax-Free First Home Savings Account (FHSA) is designed to help first-time buyers save for their down payment. The main idea is to help young people become homeowners through the housing frenzy. The FHSA combines a variety of TFSA (tax-free savings account) and RRSP (registered retirement savings plan) benefits.
In this form of savings, an individual can contribute up to a maximum of $8,000 per year, for a maximum accumulation of $40,000. These contributions are tax-free and the accumulated income is tax-free, so there is nothing to pay back over the years. Withdrawals from the purchase of a property are then also non-taxable.
Its eligibility criteria
In order to access and benefit from the TFSAPP, certain eligibility criteria must be met:
-You must be a Canadian citizen and resident 18 years of age or older.
-There is no maximum age limit for opening an account.
-You must not have acquired a property when opening an account or four years before opening it. It must therefore be a first real estate purchase.
Its characteristics
The FHSA also has certain features:
-The maximum contribution per year is $8,000.
-Unused contributions can be transferred to the following year.
-The maximum FHSA limit is $40,000.
-Like an RRSP, contributions are fully tax deductible. This increases the ability to save.
-Withdrawals related to the purchase of a property are non-taxable.
-These non-taxable withdrawals will be used to purchase a single property for life.
-If a withdrawal is made and has a purpose other than the purchase of real estate, the amount of the withdrawal will then be taxable.
-The HBP (home buyers’ plan) and FHSA can be combined to purchase your first home.
-The money can be invested in a FHSA for up to 15 years or until the age of 71. If this maximum period is reached, the account must be closed and the total amount of the accumulated money transferred to an RRSP.
–If you want to purchase a property with your spouse, you can combine the accumulated amount of your FHSA with another FHSA account for the down payment.
The FHSA then presents certain constraints, but also significant advantages for a first-time buyer.
What types of investments can you hold in a FHSA?
Other products will be offered over time. Here are the ones currently known:
-Stocks, options and bonds
-Savings deposits
-Exchange Traded Funds (ETFs)
-Cash
The FHSA: questions remain
In 1974, Pierre Elliott Trudeau, the former Prime Minister of Canada and father of Justin Trudeau, introduced a similar program to help young people become homeowners. The REEL, or home savings program, was abolished after 10 years.
In Canada, there is currently a similar program, the HBP or home ownership program. The HBP allows you to acquire or build real estate by making withdrawals from your RRSPs. The limit is $35,000.
The arrival of this new savings program, the FHSA, is very recent. The announcement was made in the last federal budget in April 2022. Many questions arise and additional rules regarding this savings account are still unknown. With its implementation scheduled for April 2023, the subtleties of this form of savings will be better known and we will have a clearer picture of this new savings program for first-time home buyers.
Scheduled for 2023, the Tax-Free First Home Savings Account (FHSA) is designed to help first-time buyers through the housing frenzy to save for their down payment. The FHSA has many advantages, such as improved ability to save, with fully tax-deductible contributions and non-taxable withdrawals on the purchase of your first home. In addition, the maximum FHSA limit is raised to $40,000, for a maximum annual contribution of $8,000. The FHSA has many advantages, but also many questions about its application. More information will be revealed over the next year in order to gain a better understanding of the FHSA.
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