Housing prices have skyrocketed in the past few years! They are starting to calm down a bit, thanks to higher interest rates, but it’s still costly to buy a house, especially if you’re living in a popular area such as Toronto or Vancouver.
One of the ways the government is trying to help Canadians afford houses is via the new First Home Savings Account (FHSA). I’ll explain:
- What is the purpose of the First Home Savings Account (FHSA) is.
- What the benefits of the FHSA are.
- Why the FHSA is a better choice than the current Home Buyer’s Plan.
Note: These accounts can’t be opened til 2023, and some of this information may change by then, so please consult with an investment professional before opening one.
What is the purpose of the FHSA?
The purpose of the FHSA is to help first-time home buyers be able to afford to buy their first home. This type of account is only available to people over 18 who either don’t currently own a home or haven’t owned one in the past four years.
You can contribute up to $8,000 a year to an FHSA, with a lifetime maximum of $40,000. Your contribution room does roll over each year, so if you can’t contribute the total amount in a year, the unused contribution room will roll over.
What are the benefits of opening an FHSA?
The most significant benefit of opening an FHSA is it is a superb tax-saving vehicle! It’s similar to a TFSA when it comes to taxes but also has some of the benefits that an RRSP offers as well.
Your contributions to your FHSA are tax-deductible, and you do not pay taxes on any qualifying withdrawals for a first home purchase. In addition, you will not have to pay taxes on capital gains or income earned in your FHSA account.
Why is the FHSA better than the Home Buyer’s Plan?
There are several reasons that the First Home Savings Account (FHSA) is a better choice than the Home Buyer’s Plan:
- The lifetime limit is higher. You can save $40,000 in an FHSA account, whereas, for the Home Buyer’s Plan, the limit is $35,000.
- You must pay back all the money you take from your RRSPs as part of the Home Buyer’s Plan.
- If you miss any repayments, those payments count as income, and you must pay taxes on them.
What do you think of the new FHSA?
Do you think it’s a good idea? Will you be opening one? Let me know in the comments!