Are you saving up to buy your first home?
The federal government has just announced a new savings account to help make funding your down payment a little easier. It’s called the Tax-Free First Home Savings Account (FHSA), and you’ll be able to set one up in 2023.
Lifetime Contribution Limit is $40,000.00
Annual Contribution Limit is $8,000.00
The account is kind of a hybrid of the Registered Retirement Savings Plan (RRSP) and the Tax Free Savings Account (TFSA) features. Contributions to an FHSA would be deductible (like an RRSP), and income earned in an FHSA and qualifying withdrawals from an FHSA made to purchase a first home would be non-taxable (like a TFSA). The lifetime limit on contributions would be $40,000, subject to an annual contribution limit of $8,000. Unused annual contribution room would not be carried forward. Individuals would also be allowed to transfer funds from an RRSP to an FHSA tax-free, subject to the $40,000 lifetime limit and $8,000 annual contribution limits.
Withdrawals for purposes other than to purchase a first home would be taxable.
Individuals would not be permitted to make both an FHSA withdrawal and a home buyers’ plan withdrawal in respect of the same qualifying home purchase. If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of opening an FHSA, their FHSA would have to be closed. Any unused funds could be transferred tax free into an RRSP or RRIF or would otherwise have to be withdrawn on a taxable basis.
Individuals eligible to open an FHSA must be at least 18 years of age and a resident in Canada. In addition, they must not have lived in a home that they or their spouse owned at any time in the year the account was opened or the preceding four calendar years.
The government will work with financial institutions to allow individuals to open an FHSA and start contributing in 2023.
First Home Buyers’ Tax Credit
The federal government is also proposing to double the Home Buyers’ Tax Credit amount.
First-time home buyers can obtain up to $750 in tax relief as a non-refundable tax credit by claiming this credit. The 2022 Federal Budget proposes to double the Home Buyers’ Tax Credit amount, such that tax relief of up to $1,500 can be accessed by eligible home buyers. This measure would apply to acquisitions of a qualifying home made on or after January 1, 2022. The credit can be split with your spouse or common-law partner as long as the combined total does not exceed $1,500.
Give us a call to take advantage of this new savings vehicle. We’re happy to help you structure your savings to best work towards your goals.
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