For many of us, owning a home is one of our top priorities in life. Are you someone who wants to purchase your first home in Canada? If yes, then your dream of buying your first home has become easier than ever with the help of ‘First Home Savings Account (FHSA).’ In this article, we’ll dig deep into the world of FHSA and explore its incredible benefits in making your homeownership dream a reality.
Understanding First Home Savings Account (FHSA)
A First Home Savings Account is a type of registered savings account that came into existence in 2022 by the Federal Government of Canada. FHSA has been structured to help you save money for your first home, tax-free. This robust investment tool will surely help you in your journey to home ownership in Canada.
As per the updated FHSA, beginning in 2023, Canadians who are at least 18 can contribute up to $40,000 to the account for their first home.
If you fulfill this condition, you can make investments to the account of up to $8,000 each year. However, there is a catch: to avoid closing the account, you must use the funds within 15 years of starting an FHSA or before age 71 (whichever comes first). This FHSA is a powerful tool helping to buy your house because you never have to worry about paying a tax bill on these savings.
Eligibility Criteria for First Home Savings Account
Those who qualify for these criteria will be able to take advantage of FHSA. Let’s shed some light on who all can apply for the First Home Savings Account:-
- You are a resident of Canada.
- The minimum age requirement is 18 (or the applicable provincial or territorial majority age).
- When the account is opened, or within the previous four calendar years, neither you nor your spouse may be the owner of a residence where you resided at any time.
You can leverage this investment vehicle if you meet all these requirements.
Remember– If you are someone who is looking to buy a second home or new home, then this plan isn’t available to you
Benefits of opening a First Home Savings Account (FHSA)
- It helps you save money for your first home in Canada
- Your taxable income for the present year will be lesser due to your investments in an FHSA, which in turn are tax deductible.
- Suppose you want to use this saved money for something else rather than purchasing a property. If that’s the scenario, then you can simply transfer the saved money to an (RRSP) Registered Retirement Savings Plan or (RRIF) Registered Retirement Income Fund, provided you are 71 years of age or older.
Some Commonly Asked Questions Related to FHSA
1. How should you use your brand-new FHSA savings account?
You can increase your investment once you have invested a maximum of $8000 for the year. While you spend hours waiting for the account to receive the maximum amount of $40,000, you can easily invest your FHSA funds in a variety of ways, such as mutual funds and Guaranteed Investment Certificates (GICs).
2. Can my spouse and I both save in a FHSA for our first new home?
You cannot have a joint spousal account; if you and your spouse qualify for all the requirements to apply for an FHSA account, you both can open separate FHSAs and contribute to them. You can only open and contribute to your own FHSA and claim the tax deduction.
If you have any questions about how to leverage your FHSA account, book a free consultation today.