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The second is the Tax-Free Savings Account (TFSA), introduced in 2009. It’s not specifically designed for home ownership, but it can certainly be used to save for real estate or other big financial goals. In the Chevreau household, we’ve always viewed TFSAs as a way to minimize taxes throughout the family. And as we shall see, the FHSA should function somewhat like a TFSA and RRSP.
Let’s say one or more of your adult children has decided to take the plunge into buying a primary home given the confluence of lower prices and this new program.
Who qualifies for the FHSA?
To qualify for the FHSA, you must be 18 years old, Canadian, and a first-time home buyer, but you can only take the FHSA once. You can donate $8,000 each year, with a lifetime limit of $40,000. An immediate benefit is that contributions result in a tax deduction, as is the case with an RRSP. But Roberts warns, “Unlike RRSPs, contributions made within the first 60 days of a given calendar year cannot be attributed to the previous tax year.”
On his blog, Mark Seed says an FHSA account can remain open for 15 years, or until the end of the year you turn 71, or until the end of the year following the year you make a qualifying withdrawal from an FHSA for the upscale First home purchase – whichever comes first.
Seed addresses “the elephant in the room,” meaning: what happens if you open an FHSA account but don’t end up buying a home?
No problem, he writes. “Any savings not used to purchase a qualifying home could be transferred to an RRSP or RRIF (registered retirement income fund) on a tax-free transfer basis, subject to applicable regulations. Of course, funds sent to an RRSP or RRIF will be taxed upon withdrawal.”
While Seed thinks Ottawa would have been better off streamlining the existing TFSA and HBP programs rather than the new registered account (and yet another new acronym!) first home.
Equally enthusiastic is CFP and RFP Matthew Ardrey, Wealth Advisor and Portfolio Manager at Toronto-based TriDelta Financial. He says: “The FHSA is the home savings plan we all dreamed of when we first got the HBP. By combining the best aspects of the RRSP, tax deductions for contributions, and the TFSA, tax-free qualifying withdrawals, this may be a game changer for Canada’s next generation of homebuyers.”