Is the FHSA for you?

The First Home Savings Account (FHSA) is designed to make homeownership more accessible in Canada, but it can also help you achieve other savings goals.

Find out if the FHSA can help bring your financial projects to life, depending on your situation.

I plan to buy my first home in a few years

If you are planning to buy your first home in the next few years, the FHSA is one of the most important savings tools to consider, since it was designed for just that purpose. Here are the advantages:

• FHSA contributions are tax deductible. Every dollar you save in this plan reduces your taxable income, allowing you to save on taxes while saving for your home.
• The money invested in your FHSA grows tax free. This means that interest, dividends and capital gains generated by investments are not taxable as long as they remain in the account. And they won’t be taxed if you withdraw the money from your FHSA to purchase a qualifying home.
• When you’re ready to buy your first home, you can withdraw your savings without having to repay them. Conversely, savings withdrawn from a Registered Retirement savings plan (RRSP) to take advantage of the Home Buyer’s Plan (HBP) must be repaid within 15 years.

Note that you can contribute $8,000 per year to your FHSA, and up to $40,000 over your lifetime. You can also carry forward contribution room from one year to the next, for a maximum annual contribution of $16,000.

I don’t yet know if I want to be a homeowner

Considering everything that buying a home entails, it’s perfectly normal to be hesitant about becoming a homeowner. However, the advantage of the FHSA is that it’s flexible, allowing you to benefit from it even if you don’t end up buying a property.

• It offers a maximum participation period of 15 years. This gives you several years to explore your options and decide whether you wish to purchase a property.
• If you don’t use your FHSA to buy a home, you can transfer the accumulated amounts to your RRSP with no tax consequences, regardless of the amount of RRSP contribution room available. However, you must ensure that you make a direct transfer and that there are no excess funds in your FHSA.
• You can also transfer the money to a Registered Retirement Income Fund (RRIF), or withdraw it directly. In any event, the funds will then be taxed on withdrawal according to the applicable rules.

This gives you access to tax benefits associated with the FHSA, such as tax deductions and tax-sheltered returns, even if you ultimately choose not to purchase a property.

I’m a homeowner whose child will have an RESP

Since you already own a home, you cannot open an FHSA. However, the Registered Education Savings Plan (RESP) and the FHSA can “work” together for your child’s financial benefit. Here’s how:

• An RESP lets you save for a child’s post-secondary education. The money you contribute grows tax free (although returns are taxed on withdrawal) and benefits from certain federal and provincial government incentives. You can also kill two birds with one stone by investing a portion of your family allowances in an RESP, if your circumstances allow it.
• Once you’ve withdrawn the money from the RESP and your child’s education is secure, your child can open an FHSA and contribute the remaining RESP money (the surplus), which you first transfer as a gift. That way, your child can benefit from the tax advantages of the FHSA even if they’ve already benefitted from those of the RESP.
• By involving your child in the management of an FHSA, thanks to the surplus from their RESP, you contribute to their financial education by teaching them, among other things, how the tax benefits of registered plans work. Note that FHSA tax deductions can also be carried forward to a higher income year if your child opens an FHSA while still in school.

Education and the purchase of a home are two very important steps in building financial wealth. The FHSA and the RESP are two tools that can give your child an edge in navigating the financial challenges of adulthood.

I’d like to help my children or grandchildren buy their first home

While you can’t contribute directly to your children or grandchildren’s FHSA, you can give them a gift so that they can contribute themselves.

It’s a great strategy for those wishing to help their children or grandchildren purchase their first home and show them the importance of saving and investing, particularly in a climate where high prices are making it more difficult to access homeownership.

I am retired or pre-retired and I am not a homeowner

Would you like to buy a property for retirement?

If you’re under 71 years of age, not a homeowner and you meet the other eligibility criteria, it’s not too late to open an FHSA.

In fact, you don’t have to keep your funds in the FHSA for a minimum period before you can make a qualifying withdrawal. Conversely, if you wish to take advantage of the HBP, your RRSP contributions must remain in the plan “for at least 90 days” before they can be withdrawn. The FHSA offers you greater flexibility if you want to buy quickly.

If you don’t purchase a property, the FHSA can still offer you an additional savings option for retirement, or other long-term projects, by growing your money tax free and allowing you to benefit from tax deductions.

You can then transfer these savings to your RRSP, however much space is available there, or to your RRIF. And this without any tax consequences, as long as you ensure that you make a direct transfer and that there are no excess funds in your FHSA.

Find out more

For further details on the FHSA, such as eligibility criteria, read the article FHSAs in 10 questions.

The information presented in this article is for illustrative purposes only. The best way to find out which strategy is best for you is to talk with an advisor. Your advisor will guide you based on your needs and your investor profile.