Embarking on the journey to own your first home in Canada is a significant and exhilarating step. However, the financial challenge of accumulating a down payment can be a roadblock for many. Fortunately, there's good news for aspiring homeowners—enter the First Home Savings Account (FHSA), a recently introduced registered savings plan by the federal government.

This article is your guide to understanding the FHSA, equipping you with essential information to navigate the path toward your homeownership goals.

What is FHSA? (A First Home Savings Account)

The FHSA is a special savings plan for people looking to buy their first home. You can save up to $40,000 (that's $8,000 each year) without paying taxes on it. Just like with an RRSP, the money you put into your FHSA can be taken off your income when you do your taxes.

Here's the cool part: when you're ready to buy or build your first home, you can take the money out without paying taxes. If you don't use all the money, no worries! You can move it to an RRSP or a Registered Retirement Income Fund without any extra taxes.

In simple terms, the FHSA combines the good parts of Tax-Free Savings Accounts and RRSPs to help new homeowners get a head start in tough economic times.

*RRSP (Registered Retirement Saving Plan)

Top 6 Reasons to Invest in FHSA

Invest in your dream home with the FHSA, a powerful savings plan that lets you save tax and with the flexibility to carry over unused contribution rooms and potentially reduce your tax bill. Plus, enjoy tax-free investment earnings, perfectly complementing the Home Buyers' Plan (HBP). Here are some top reasons for investing in FHSA

• Save up to $40,000 for your first home
• Contribute tax-free for up to 15 years
• Unused contribution room can be carried over to the next year, up to a maximum of $8,000
• Potentially reduce your tax bill and carry forward non-deductible contributions indefinitely
• Pay no taxes on any investment earnings
• Complements the Home Buyers’ Plan (HBP)

FHSA Rules and Eligibility That You Must Remember

Explore FHSA account details Rules that you should familiarize yourself with:

• Annual contribution limit: $8,000; lifetime limit: $40,000.
• Multiple accounts are allowed with consistent contribution limits
• Contributions made within the initial 60 days of the year cannot be used to claim income deductions on the previous year's tax return.
• Carry forward unused contributions up to $8,000
• Exceeding annual limits incurs a 1% monthly tax
• Account duration: 15 years, until the account holder turns 71, or upon a qualifying first-home withdrawal

Types of FHSA

There are three different types of FHSA options available that offer a great deal of flexibility and choice to the users. These options can be tailored to individual requirements and preferences, allowing users to choose the one that best suits their needs.

1. Depository Accounts

• Held with financial institutions
• Includes cash, guaranteed investment certificates (GICs), or term deposits

2. Insured FHSAs

• Annuity contracts with licensed annuity providers

3. Trusteed FHSAs

• Trust accounts, often with a trust company
• Holds various qualified investments like cash, GICs, term deposits, bonds, and mutual funds

How Does FHSA Work?

To gain a full understanding of how the FHSA (First Home Saver Account) operates, it is crucial to comprehend the eligibility criteria for opening it. This will help you determine whether you qualify for opening an FHSA and what benefits you can avail of through it.

1. Eligibility Criteria

Below are the eligibility for a seamless home savings journey

• Reside in Canada
• You must be at least 18 years old and no more than 71 years old as of December 31st, of the year you open your FHSA
• Haven't owned real property solely or jointly in the last 4 years
• Spouse or partner can't own your current primary residence (i.e. where you currently live and reside)

2. Opening an FHSA

Step 1: Choose Your FHSA Issuer

• Opt for a bank, credit union, trust, or insurance company as your FHSA issuer.
• Seek advice from your chosen issuer about the available FHSA types and qualified investments.

Step 2: Initiate Contact with Your Issuer

• Reach out to your selected issuer to begin the FHSA opening process.
• Furnish essential details for FHSA registration, as given below
• Social insurance number
• Date of birth
• Provide any supporting documents required for issuer verification

Step 3: Ensure to Provide Correct Information

The information that you provide in the FHSA should be accurate and should align with the qualifying criteria. Inaccurate information may lead to the revocation of FHSA registration.

3. What Happens After Revocation?

If you provide inaccurate information, the following could be the consequences of revocation

• Contributions won't be tax-deductible
• Transfers from RRSPs will be treated as RRSP withdrawals
• Earned income under the account won't be tax-free

4. Closing an FHSA

To avoid unexpected taxes, the Canada Revenue Agency suggests closing your FHSA before you reach certain points. This should be done by December 31 of the year when:

• Your FHSA turns 15 years old.
• You turn 71 years old.
• You took out money to buy a home in the previous year

5. Tax-Free Withdrawal from FHSA

You can enjoy tax-free withdrawal by adhering to the following conditions

• Commit to acquiring or building a home by October 1 of the subsequent year.
• Submit Form RC725, signaling your intent for a qualifying withdrawal, to your FHSA issuer
• Acquire the home within 30 days before the withdrawal
• Occupy or plan to occupy the property as your primary residence within 1 year

Your Gateway to Canada Through GetGIS

As we conclude this journey through the intricacies of the First Home Savings Account (FHSA), it's evident that this financial tool holds the key to your dreams of homeownership in Canada. With its tax advantages and tailored benefits, FHSA empowers aspiring homeowners to bridge the gap toward their first property.

Now that you've grasped the wealth of opportunities awaiting you in Canada, it might be the perfect time to consider making this vibrant nation your new home. If you're contemplating plans to immigrate to Canada, whether for job opportunities, permanent residency, or more, consider partnering with GetGIS. Let's turn your Canadian dreams into reality together! Book Your Free Consultation

Useful Links

• Banking Jobs in Canada for Indians: Scope, Eligibility, and More
• What Next After Getting Canada PR?
• Canada PR Visa Fees in 2024: Understanding Costs and Process
• Pros and Cons of Moving To Canada From India