First Home Savings Account
First time buyers (or people who haven’t owned a house for 4 years) must open their account to take advantage of the ability to use the $8000 tax deductible benefit for 2024. If they don’t open the account in 2024 they lose that $8000 benefit for 2024.
The FHSA, or First Home Savings Account, is a special savings account in Canada designed to help people save up for their first home. It’s like a mix between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP), combining some of the best features of each.
Here’s how it works in simple terms:
- Tax-Deductible Contributions: You can put money into an FHSA each year, up to a certain limit ($8,000 per year, with a maximum lifetime contribution of $40,000). The money you put in is tax-deductible, meaning it reduces your taxable income for the year, which can lower the taxes you owe.
- Tax-Free Growth: Just like with a TFSA, any money you earn from investments in your FHSA (such as interest, dividends, or capital gains) grows tax-free. You don’t have to pay taxes on these earnings as long as they stay in the account.
- Tax-Free Withdrawals for Your First Home: When you’re ready to buy your first home, you can take money out of the FHSA without paying any taxes on it—as long as you use it for a qualifying home purchase. This gives you more buying power since you keep 100% of the amount you saved.
- Unused Contributions Can Be Rolled Over: If you don’t buy a home or decide not to use the FHSA for a house, you can transfer the savings to your RRSP or RRIF (Registered Retirement Income Fund), letting it continue to grow tax-free for your retirement.
- Who It’s For: This account is only for first-time homebuyers, which generally means you haven’t owned a home in the last four years.
Overall, the FHSA is a tool to help first-time homebuyers in Canada save more effectively by providing both tax breaks on contributions and tax-free growth and withdrawals when used for a home purchase.
Contact us to learn more!