The Canadian government recently launched a new tax-free savings account called the First Home Savings Account (FHSA) that combines the best features of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). The account allows first-time homebuyers to save for a down payment on their home without paying taxes on the account’s earnings.
Two of Canada’s major banks, National Bank of Canada and Royal Bank of Canada, recently announced that they will be offering the FHSA option for customers. However, other major banks such as TD Bank, BMO, and CIBC will not offer the account until later in 2023.
The FHSA has a lifetime limit of $40,000 and an annual contribution limit of $8,000. Unused contributions can be carried forward into the next year. The account is open to Canadian residents who are first-time homebuyers between the ages of 18 and 71, except in provinces where the legal age to enter a contract is 19. Accounts can be open for 15 years or until the person turns 71, whichever comes first.
According to Erica Nielsen, RBC’s executive vice-president of Personal Banking & Investments, the bank’s research shows strong interest in the account among hopeful homeowners. “Our research indicates Canadians have been eagerly awaiting the FHSA, with almost one-third of those who aren’t yet homeowners telling us they were planning to use this new account to save for a home purchase,” Nielsen said in a news release.
The FHSA offers several benefits for first-time homebuyers. One of the most significant advantages is the ability to withdraw funds tax-free, as long as they are used to purchase a home. Additionally, the account’s earnings are tax-free, which can significantly increase the account balance over time. Furthermore, the account’s contribution limits allow for significant savings, and unused contributions can be carried forward, making it easier for homebuyers to save for a down payment.
While only two major banks currently offer the FHSA option, other financial institutions, including online investing firms like Questrade and Fidelity Investments Canada, have also started offering the account. TD Bank, BMO, and CIBC have announced that they will offer the account option in the coming months or by mid-2023.
The FHSA is a game-changer for Canadian homebuyers, offering an excellent opportunity to save for a down payment without worrying about taxes on earnings. With the FHSA, first-time homebuyers can take advantage of the account’s tax-free benefits and contribution limits to reach their home buying goals faster. The FHSA is an excellent option for young Canadians who are looking to purchase their first home and build equity.