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While Gen Z is currently facing many hurdles, including rising interest rates and inflation, there are still ways to achieve homeownership. In our current economic climate, where many young people believe they will be lifelong renters, the introduction of the new tax-free FHSA will provide much-needed help.
How does the FHSA work?
The FHSA is a new type of registered account, like the Tax-Exempt Savings Account (TFSA) and Registered Retirement Plan (RRSP). You can contribute up to $8,000 to your FHSA annually, up to a lifetime limit of $40,000. Contribution space begins to accumulate after you open the account, and you can carry over any unused portion from one year to the following year, for a maximum contribution of $16,000 in any given year. Another advantage is that contributions to an FHSA are tax-deductible (like an RRSP) and withdrawals are tax-free (like a TFSA).
Am I eligible for the FHSA?
To qualify for the FHSA, you must be a Canadian resident and be at least 18 years old. When opening the account, you must also qualify as a first-time home buyer and must not have lived in a home owned by you or your spouse or domestic partner in the past four calendar years.
Which rules do I have to observe?
Here are some things to consider when opening an FHSA:
- After you withdraw money from the account, you must purchase a home by October 1 of the following calendar year or the money will be taxed as income.
- The house you buy must be in Canada.
- You must close the account after 15 years or at the end of the year you turn 71, whichever comes first.
- If you’re not going to use the money to buy a home, you can transfer it to your RRSP.
- Unlike the Home Buyers’ Plan (HBP), you don’t have to pay back the money deducted from an FHSA.
Create an FHSA savings plan
Once you are ready to open an account, you should have a savings plan. According to the Canadian Real Estate Association (CREA), the median home price in Canada in February 2023 was $662,437, and in the Greater Toronto and Greater Vancouver areas, the median price was a whopping $1,091,300 and $1,123,400, respectively. The area you want to live in and the type of property you want to buy (e.g. townhouse or condo) will determine your price range.
From there you will need to determine the amount of your deposit. Homes worth $1 million or more require a minimum 20% down payment, and homes worth less require a 5% to 10% down payment.
Here is an example of how you would set your own savings goal:
Location of the future home | Ottawa, Ont. |
Desired object type | townhouse |
Target price for the home | $600,000 |
Deposit target (%) | 20% |
Deposit Amount ($) | $120,000 |
Number of years to save | 12 years |
Annual savings required | $10,000 |
Monthly savings required (annually / 12 months) |
$833.33 |
Weekly savings required (annually / 52 weeks) |
$192.31 |
Since the maximum you can contribute to an FHSA is $40,000, you must allocate the remaining $80,000 to other accounts, e.g. B. an RRSP (for use with the HBP) and a TFSA. For the HBP, you can pull a maximum of $35,000 out of your RRSP (or a maximum of $70,000 for a couple buying a home together). So the balance of $45,000 must come from your TFSA. Let’s break this down further to determine how much money you need to save on each account: