Get Ahead of the Game: Understanding the First-Time Homebuyers Savings Account

For many, the dream of homeownership is a big step towards financial stability. However, saving for a down payment can be challenging, especially with the added burden of taxes. Thankfully, the government of Canada has introduced the First-Time Homebuyers Savings Account (FHSA), providing a new way for first-time homebuyers to save for their down payment.

The FHSA is a savings account specifically designed for first-time homebuyers. This means that contributions made to the account, as well as any interest or capital gains earned, would be eligible for an income tax deduction. The account will have a lifetime contribution limit of $40,000, and individual contributions capped at $8,000, per year.

To be eligible to open a FHSA, individuals must meet certain qualifications, including being a Canadian resident, 18 years or older, and a first-time home buyer. The account can stay open for 15 years or until the end of the year in which the individual turns 71, or the end of the year following the withdrawal for the purchase of a qualifying home, whichever comes first.

It's worth noting that the FHSA operates differently from the current Home Buyers' Plan. The Home Buyers' Plan allows Canadians to withdraw up to $35,000 from their RRSP, subject to certain qualifications and conditions, with the funds required to be paid back over 15 years. With an FHSA, however, funds do not need to be paid back.

In the event that a qualifying home is not purchased, savings in the FHSA can be transferred to an RRSP or RRIF on a non-taxable transfer basis, subject to applicable rules, with the transferred funds taxed upon ultimate withdrawal.

To be eligible to withdraw funds from the FHSA for the purpose of purchasing a home, the individual must be a first-time home buyer and a Canadian resident at the time of withdrawal. They must also have a written agreement to buy or build a qualifying home located in Canada, before October 1st of the following year, with the intent to occupy it as the primary residence within one year of the purchase or completion of construction.

The First-Time Homebuyers Savings Account is a valuable tool for first-time homebuyers, allowing them to save for a down payment while getting a tax break on their contributions, however, it should be used in conjunction with other measures such as careful financial planning, speaking with a mortgage professional, and being mindful of credit scores.

Here at FS2, we understand the complexities of purchasing a home and the benefits of saving for it in advance. Our team of financial advisors are here to guide you through the process, and assist you in making the most of the FHSA as well as any other investment options that may be of benefit. Contact us today to schedule a consultation and get ahead of the game.