What is the FHSA program for home purchase?

What is the FHSA program for home purchase

The First-Time Home Savings Account (FHSA) is a Canadian program launched in 2023 that allows individuals to save money for purchasing their first home, offering tax benefits. This tool is a hybrid between an RRSP and a TFSA, but it is specifically aimed at saving for the purchase of a first home.

How the FHSA works:

• Program goal: Create a targeted savings account for buying a first home.
• Tax benefits: Contributions to this account are deducted from taxable income, similar to an RRSP, and any income (e.g., investment income) and withdrawals used to purchase a home are tax-free, similar to a TFSA.
• Account duration: The account can exist for a maximum of 15 years or until the holder turns 71, whichever comes first.

Who is eligible:

• The program is available only to Canadian tax residents, who are at least 18 years old and have never owned a home (with certain exceptions and nuances).

Contribution limits:

• Annual contribution limit per person: $8,000.
• Maximum lifetime contribution limit: $40,000.
• If you do not contribute the full amount in a year, the unused contribution room can be carried forward to future years (similar to a TFSA).

How to withdraw money:

• Funds can be withdrawn for the purchase of a home, and in this case, they will be completely tax-free.
• If funds are withdrawn for purposes other than buying a home, they are taxed as regular income, or they can be transferred to an RRSP or a RRIF (pension accounts) without tax consequences.

What happens in the case of death:

• If the account holder dies, the funds can be transferred to a spouse’s FHSA (provided they meet the program's conditions described above), or the funds will be included in the estate and taxed like other assets of the deceased person. It is important to designate a beneficiary for this program.

Other aspects:

• Investments: The money can be invested in various assets such as stocks, bonds, funds, etc., which allows for increasing the savings.
• The account can be combined with other programs, such as the Home Buyers' Plan (HBP), allowing for an increase in the total amount of available funds for purchasing a home.