Owning your first home just got easier.
The Tax-Free First Home Savings Account (FHSA) is a government-registered, tax-free investment savings account — combining the benefits of a TFSA and RRSP — to which you can contribute up to a lifetime maximum of $40,000 to purchase your first home and it's coming soon to connectFirst!
Here's the gist:
- Save up to $40,000 tax-free, for your first home.
- Contribute as much as $8,000 per year.
- Contributions reduce your yearly taxable income.
- For Canadian residents ages 18-71.
- Available to open at connectFirst soon.
So, what's different about a FHSA?
|Annual contribution limit||$8000||*RRSP contribution limit||$6500|
|Contributions are tax deductible||Yes||Yes||No|
|Taxable withdrawal if used for home purchase?||No||No||No|
|Taxable withdrawal if used for other purchase?||Yes||Yes (unless under HBP)||No|
|Limit towards first home purchase||$40,000||$35,000||Entire balance|
|Repayment||Not required||Within 15 years, starting 2nd year after withdrawl||Not required|
|Carryforward contribution room||Yes||Yes, if contribution room available||Yes|
|Maturity limit||15 years from account opening or age 71, whichever occurs first||By the last day of the year the account holder turns 71||None|
|Spousal contributions||Not allowed||Allowed in a spousal RRSP||Not allowed|
You can open an FHSA in Alberta so long as:
- you’re a Canadian resident,
- you’re at least 18 years of age or older,
- you’re under the age of 71, and
- in the current calendar year or in the previous four calendar years, you or your spouse or common-law partner haven’t lived in a home that either of you have owned.
The federal government applies a 1% penalty per month on any contribution amounts over your annual FHSA limit. You can’t deduct overcontributions in the year you make the overcontribution. However, you can deduct it in the following year if you have new unused FHSA contribution room that covers the overcontribution. The 1% penalty ceases when you either withdraw the overcontribution or you earn sufficient contribution room the following year.
For example, let’s assume you open an FHSA and contribute $10,000 in 2023. You have a $2,000 overcontribution for 2023. For 2023, you can deduct $8,000 of that $10,000 contributed. But for the 2023 tax year, you can’t deduct the $2,000 you over-contributed. A 1% penalty tax applies for each month you retain the overcontribution in the plan. On January 1, 2024, you receive additional contribution room of $8,000 for 2024. You can deduct the $2,000 overcontribution in 2024 and contribute and deduct up to $6,000 more during the year. The 1% penalty ceases on January 1, 2024. Note you won’t receive additional contribution room if you’ve surpassed your lifetime limit ($40,000).
- Your new home must be your main residence within one year after buying or building it.
- You must be a first-time home buyer when you make a withdrawal or within 30 days of moving into a qualifying home.
- You’ll need a written agreement to buy or build a qualifying home before Oct. 1 of the year following the year of the withdrawal.