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  • Writer's pictureHilary M.K. Poff | CFA

What Is the New Tax-Free First Home Savings Account?

Housing prices may have cooled from their March 2022 highs, but first-time homebuyers, in Canada are still facing the toughest real estate market in generations. In fact, soaring home prices and the biggest interest rate hikes in decades have eroded affordability to its worst level in decades. This has resulted in many would-be first-time homebuyers being shut out of the market.

This is a dangerous precedent. That’s because first-time homebuyers typically account for more than half of all purchases. Since the pandemic though, that number has been falling, reaching a low of 46.8% in June 2021.

Tax-Free First Home Savings Account

Housing prices have started to edge down, but that doesn’t necessarily mean affordability has improved. Depending on where you live, Canada’s housing market can be tricky to navigate. Fortunately, for first-time homebuyers, the federal government has launched a number of programs designed to help first-time home buyers step onto the property ladder.

What Is the Registered Home Ownership Savings Plan?

Three popular financial vehicles used to help Canadians save for a down payment include the Registered Retirement Savings Plan (RRSP) Home Buyers Plan (HBP), tax-free savings account (TFSA), and provincial programs like the Ontario Home Ownership Savings Plan.

There’s an even better way to save though for your first property. In the 2022 Federal Budget, the government of Canada unveiled the Tax-Free First Home Savings Account (FHSA), a new registered plan that allows account holders under the age of 40 to save up to $40,000 towards their first home, tax-free.

What Are the Advantages of the FHSA?

Starting in 2023, the FHSA essentially combines the advantages of the existing TFSA and RRSP. Like an RRSP, contributions will be tax deductible, and like a TFSA, qualifying withdrawals to purchase a first home will be non-taxable.

With an FHSA, and unlike a Home Buyers Plan, the money does not need to be paid back. This new program allows Canadians to save 100% of every dollar they earn, up to $40,000, shortening the amount of time it takes to save for a down payment.

What Are the Features of an FHSA?

To be eligible to open an FHSA, you need to be:

  • A Canadian resident

  • 18 years or older

  • A first-time homebuyer (a first-time homebuyer is defined as someone who has not owned a home in the year the account was opened or the preceding four calendar years)


  • The account can stay open for 15 years, or

  • Until the end of the year you turn 71, or

  • At the end of the year following the year where you made a qualifying withdrawal from an FHSA

Contributions and Deductions

  • FHSA account holders can claim an income tax deduction for contributions made in a particular tax year

  • Thy can contribute up to $8,000 annually, up to a maximum of $40,000

  • Unused contribution room can be carried forward to the following year, up to a maximum of $8,000

What If I Don’t Buy a Home?

  • Any unused savings contributed to the FHSA can be transferred to an RRSP, or registered retirement income fund (RRIF)

  • Savings transferred to an RRSP or RRIF will be taxed when the funds are withdrawn

  • If the savings are simply withdrawn and not transferred, the FHSA funds are subject to taxes

What Is a Qualifying Withdrawal?

  • You must be a first-time homebuyer and a resident of Canada when the funds are withdrawn to buy the qualifying home

  • Must have an agreement to buy or build a home in Canada before October 1 of the year following the year of withdrawal

  • A share in a co-operative housing corporation in which you have an equity interest also qualifies. One that only provides a right to tenancy does not.

  • The qualifying home needs to be your principle residence and you must occupy it within one year of buying or building it

How Does the FHSA Differ from the Home Buyers Plan?

There are some big differences between the current Home Buyers’ Plan and the FHSA. With the Home Buyers’ Plan, Canadians can withdraw up to a maximum $35,000 from an RRSP for a down payment. The money also needs to be repaid within 15 years.

With an FHSA, you can funnel $40,000 into the plan and the savings do not need to be repaid. Best of all, the FHSA and the HBP plan can be used together.

Sharp Asset Management for Your Retirement Planning

When it comes to reaching your goal of home ownership, it’s important to find an asset manager that can help you decide which investment option is right for you. If you live in Toronto, Mississauga, or anywhere in the GTA, the private wealth management professionals at Sharp Asset Management can help.

Sharp Asset Management Inc. is an independent portfolio management firm that is 100% owner-operated. We are not affiliated with any financial institution, securities firm, or mutual fund company. Nor do we earn any commissions or fees on investments we choose for our clients. That means our wealth management professionals are focused exclusively on helping you achieve your unique, long-term investing objectives. To learn more about investing with Sharp Asset Management, contact us today.

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