Savings vehicles like a can make it easier for you to overcome one of the largest barriers to home ownership — squirreling away that sizable down payment.Â
A standard down payment these days is 20 per cent of purchase price, but can be as low as five per cent if you qualify after passing the .
Either way, in today’s inflated market you’ll need tens of thousands in savings to unlock that first home.
Experts say an FHSA is a great way to get a jump on those savings by taking advantage of tax-planning strategies.
Rolled out in April 2023 by the federal government, the FHSA lets eligible Canadians contribute up to $8,000 a year tax-free — up to a lifetime limit of $40,000 — toward the purchase of a first home. Like other tax-sheltered accounts (RRSPs, TFSAs, RESPs),  investment vehicles.
An FHSA can stay open for 15 years, and as of November, nearly a million Canadians had one.
Ian Calvert, V-P and principal at HighView Financial Group, says the FHSA combines the best features of a tax-free savings account (TFSA) and a registered retirement savings plan (RRSP).
Similar to a TFSA, the FHSA lets your savings grow tax-free without needing to pay tax on the proceeds when you withdraw the money to buy your first home. And like an RRSP, the money you contribute to an FHSA is tax-deductible — provided you use the proceeds to buy an eligible first home.Â
“There’s one misunderstanding I’ve seen that relates to the timing of the deduction for an FHSA contribution,†says Jason Heath, managing director at Objective Financial Partners in Toronto. “When you contribute to an FHSA, you report the contribution in the year that you make it. But you don’t have to deduct the contribution until a future year — you can carry forward your contribution and claim it on a future tax return.â€Â
Heath says some Canadians might not see the value in contributing to their FHSA if their income is not high enough.
“But you can get the money working and growing on a tax-deferred basis and carry forward that deduction to claim later when your income tax bracket is higher.â€Â
It’s also worth noting that you can transfer savings from either an RRSP or TFSA into an FHSA, but beware of tax consequences.
“You can transfer money from your RRSP into your FHSA, but it’s not considered a tax-deductible contribution because you’ve already got a tax deduction on the RRSP contributions,” says Heath. “If it’s coming from a TFSA, you wouldn’t do a direct transfer from your TFSA: It would be a TFSA withdrawal first, and then a corresponding FHSA contribution.â€Â
Calvert adds it’s important to .
If you change your mind about purchasing a home or don’t use it for up to 15 years, the account must be closed. However, unused savings can be transferred to an RRSP or withdrawn as taxable income, said Calvert.Â
“I’m often encouraging parents and grandparents who expect to help their children and their grandchildren buy a home to consider giving them money to contribute to their FHSAs because it’s a use it or lose it opportunity,†says Heath. “If you can get some tax deductions for the child or grandchild and some tax-deferred growth in the meantime, there can be an advantage to an early down payment gift over a few years.â€
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