First Home Savings Accounts: How to take advantage

Tax-Free Home Savings Accounts: How to take advantage

Click the link above an article from Jamie Golombek. Jamie is the Managing Director, Tax & Estate Planning for CIBC Private Wealth Management team. The article was published on April 5, 2023 to a number of publications. Find more from Jamie Golombek at his personal website jamiegolombek.com.

What is a First Home Savings Account? Check out this link to canada.ca for more. Reach out to Philotimo Wealth and Jerry/CJ directly to discuss if it makes sense for you.

From Jamie, a few bullet points overview (direct quotes from article below): 

• "2023 federal budget description of “tax-free in; tax-free out” succinctly summarizes the attractiveness of the FHSA"
• "gives prospective first-time homebuyers the ability to contribute up to $40,000 and save on a tax-free basis towards the purchase of a first home in Canada."
• "The FHSA combines the best features of both the registered retirement savings plan (RRSP), which is a tax-deductible contribution, and the tax-free savings account (TFSA), which is the tax-free withdrawal of all contributions, investment income and growth earned in the account when used to buy a first home."
• "The FHSA can remain open for up to 15 years or until the end of the year you turn 71. Any funds in the FHSA not used to buy a qualifying home by this time can then be transferred on a tax-deferred basis into an RRSP or registered retirement income fund (RRIF), or withdrawn on a taxable basis."
• "If you qualify, you’re able to contribute as much as $8,000 per year, up to the $40,000 lifetime contribution limit."
• "just like RRSP contributions, you don’t have to claim the FHSA deduction in the year you make the contribution. The contribution can be carried forward indefinitely and deducted in a later tax year, which may make sense if you expect to be in a higher tax bracket in the future."

The above point is excellent news. For young Canadians starting to save for a house, their income may be low in that year but expected to increase in future years. The ability to carry forward contributions to deduct from your income in future years, means more money in your pocket.

Have you contributed too much to your RRSP and cannot access those funds for a down payment? The maximum amount you can withdrawal from an RRSP under the RRSP First Time Homebuyers' plan is currently $35,000. If you have more money in your RRSP, it may be beneficial to take advantage of the FHSA (see point below from Jamie): 

• The rules permit you to transfer funds from an existing RRSP to an FHSA on a tax-free basis, subject to the FHSA annual and lifetime contribution limits. These transfers aren’t tax deductible (you were already entitled to claim a tax deduction when the funds were contributed to your RRSP), and the transfers won’t reinstate your RRSP contribution room.
• The rules also permit you to carry forward any unused portion of the year’s annual contribution limit, up to a maximum of $8,000. This means that if you contribute (or transfer) less than $8,000 in a given year, you can then contribute the unused amount in a future year (up to a maximum of $8,000) in addition to your annual contribution limit of $8,000 (subject to the $40,000 lifetime limit). Note that carry-forward amounts only start accumulating after you open an FHSA for the first time.

The final point above here in bold is key: carry-forward amounts only start after you open an account. You need to get an account open ASAP! Even if you cannot contribute, start building that room! Reach out to Philotimo Wealth and Jerry/CJ directly to discuss if it makes sense for you.

The article was published on April 5, 2023 to a number of publications. Find more from Jamie Golombek at his personal website jamiegolombek.com.

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