The government announced the new tool to help build a homebuying nest egg in the budget earlier this year
Details of a new account to help Canadians save to buy their first home have been revealed this week.
The First Home Savings Account (FHSA) was proposed by the federal government in the budget earlier this year and should be available sometime in 2023.
The Department of Finance said that the FHSA will give people the ability to save up to $40,000 tax-free towards their first home. Similar to the Registered Retirement Savings Plan (RRSP), contributions to the new savings account will be tax deductible.
Withdrawals to purchase a first home, including from investment income, would be non-taxable, like a Tax-Free Savings Account (TFSA).
There will be an annual contribution limit of $8,000 and whenever the accounts become available in 2023, Canadians will be able to invest the full amount in that year.
An FHSA would be permitted to hold the same qualified investments that are currently allowed to be held in a TFSA, such as holding a broad range of investments, including mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates.
Qualifying for FHSA
Although it is intended for first home buyers, the definition of this is not absolute, meaning those that have previously been homeowners may still qualify.
The rules state that FHSA holders must be over 18 and has not owned a home in the part of the calendar year in which they open the account or in the previous four calendar years.
An individual’s FHSA will cease after December 31 in the year of the fifteenth anniversary of the individual first opening an FHSA or an individual’s 71st birthday, whichever is the earliest.
If savings are not used to buy a home, they can be transferred to an RRSP or RRIF or withdrawn on a taxable basis.
Further details of the rules are available from the Department of Finance website.