The government announced the tax-free First Home Saving Account (FHSA) to support first-time homebuyers in Canada. Now, Canadians can open an FHSA and begin saving for their first home tax-free while enjoying additional benefits.
With interest rates holding at 4.5 percent and inflation slowly declining, people are finally feeling economic relief. However, countless Canadians still cannot afford to buy their first homes, with most even giving up on their dreams of homeownership altogether.
In a 2022 survey about home-buying in the country, 63 percent of non-homeowning Canadians said they have given up on buying their own homes. Moreover, 67 percent of the respondents believe owning a home is now a privilege only the rich can afford.
This significant loss of confidence can be attributed to the skyrocketing price of homes in the country over recent years. Since 2018, the average Canadian house price has increased from roughly $489,000 to approximately $704,000 in 2022.
Because of this increase, saving for a down payment has become almost impossible for many Canadians, especially younger adults.
However, homeownership can be within reach for people across the country with the new FHSA plan. This tax-free savings account has an $8,000 annual contribution cap and a $40,000 maximum lifetime limit.
Moreover, it helps Canadians reach their savings goals because contributions to the account are tax deductible on annual income tax returns. Withdrawals to purchase a first home, including those for investment income on contributions, are also non-taxable.
For example, a couple looking for a home in Ontario saves $8,000 annually in their FHSA. Come tax season; they can deduct this expense from their income tax.
After five years of contributions, the couple can withdraw funds tax-free from their FHSA to secure a down payment on their first home. Moreover, the couple can receive $1,500 through the First-Time Home Buyers’ Tax Credit after purchasing the property.
Almost all first-time homebuyers can open an FHSA. To be eligible for this tax-free home saving account, you must meet the following requirements:
- At least 18 years old
- Not over 71 years old
- A resident of Canada
- A first-time homebuyer
First-time homebuyers are people who have not owned any real property solely or jointly with a common-law partner or a spouse within the last four years.
According to a recent press release from the government, the FHSA is currently available at seven Canadian financial institutions, including the following:
- Questrade, since April 2023
- National Bank of Canada, since April 2023
- Royal Bank of Canada (RBC), since April 2023
- Fidelity, since April 2023
- EQ Bank, since July 2023
This tax-free plan provides crucial financial opportunities for young Canadians who want to start saving for their own home. It offers new homeowners a running start in an economically challenging period.
Those uncertain about the tax implications of opening an FHSA should seek the help of tax accountants and the best voluntary disclosure experts. This way, they can avoid or address mistakes or omissions in their tax filings, ultimately preventing costly penalties and prosecution.