The First Home Savings Account (FHSA) is a savings plan designed for first-time home buyers in Canada, which allows them to save up to $40,000 tax-free. Contributions to an FHSA are tax-deductible, similar to Registered Retirement Savings Plans (RRSP). Additionally, income and gains earned inside the account and withdrawals are tax-free, like a Tax-Free Savings Account (TFSA).
In this article and accompanying infographic, we will provide you with the necessary information you need to know about FHSA, including eligibility requirements, contributions and deductions, income and gains, qualifying investments, withdrawals, and transfers.
To be able to open an FHSA, you need to meet all the following eligibility requirements:
1. Residency: You must be an individual who is a resident of Canada.
2. Age: You must be at least 18 and not reach 72 in the current year.
3. First-time Home Buyer: You must be a first-time home buyer, which means that neither you nor your spouse had owned a qualifying home that was your principal residence at any point during the calendar year or the preceding four calendar years before the account was opened.
Contributions and Deductions
There are limits to the amount you can contribute to your FHSA.
The annual contribution limit is $8,000.
The lifetime contribution limit is $40,000.
If you do not contribute the full amount each year, the contribution room carries forward to the following year. However, carry-forward amounts only start accumulating after you open an FHSA for the first time, and they do not automatically begin when you turn 18.
Any excess contributions are subject to a penalty of 1% per month.