Contribute tax-free to an FHSA for your first down payment.
With current rules, an eligible individual can contribute a tax-deductible amount up to a limit of $8K per year until reaching the maximum total contribution limit of $40K (which would be reached in 5 years if you sock away the full $8K each year).
You can only carry forward contribution room to a max of $8K, even if you don't add funds for a few years. So, the maximum you could contribute in one year is $16K (the current year's max amount, plus the previous year's max amount carried forward).
If you open an account and forget about it for a few years, your contribution room doesn't keep accumulating. If you over-contribute in a year, you'll incur a 1% tax for each month the overage sits in your account (the same as for a regular TFSA).
You aren't required to save the full $40K — you can put away as much as you can until you withdraw it to buy a home. The interest accumulated through your FHSA investments is also excluded from taxation so long as you withdraw it for the intended purpose.
Can you use FHSA funds for more than the down payment?
Your qualifying FHSA withdrawal can be used towards your down payment and other costs associated with buying your first home, such as closing costs, legal fees and moving expenses.
Are you eligible for an FHSA?
To qualify for an FHSA, you must be:
- At least 18 years old (or 19, depending on your province)
- A Canadian resident
- A 'first-time home buyer' as outlined by the Canadian government
To be considered a first-time home buyer, before opening your account, it means you haven't owned or jointly owned a qualifying home that you lived in during that calendar year or at any time in the preceding 4 calendar years.
Accounts are considered 'individual,' and so are not open to contributions from a spouse or common-law partner’s FHSA — though you can be gifted an amount to contribute.
How long can you hold an FHSA?
- From the open date, your account can be held up to 15 years or until the end of the year in which you turn 71, whichever comes first
- You have that time to contribute to your maximum amount and use it towards the purchase of your first home
- Even if you only save for a year or two before buying, it's still a tax-free portion of your down payment
Make a tax-free 'qualifying withdrawal' from your FHSA when you buy a home.
Check out the CRA page (or talk to your financial institution) to know all the qualifying conditions for your withdrawal — such as a written agreement to buy or build a home, and needing to withdraw within 30 days of acquiring the home.
The same as when you opened your FHSA, you need to be a first-time buyer, and so should not have owned or jointly owned a qualifying home that you lived in during that calendar year or at any time in the preceding 4 calendar years.
With conditions met, you can withdraw the entire amount (one-time amount or several withdrawals) from your FHSA tax-free for your first primary home purchase.
- Interest accumulated is also excluded from taxation (for this purpose)
- Unlike the HBP, you don't need to pay your FHSA amounts back
- You'll need to close your FHSA on or before December 31 of the year following your first qualifying withdrawal (the program assumes the account is no longer needed for its intended purpose)
What happens to your FHSA if you don't buy a home?
- At the end of 15 years from the opening date (or if you reach 71 years of age first) and money is still in the account, you'll need to transfer it to an RRSP or RRIF if you want to keep the amount tax-deferred
- If you transfer the money out and keep it, you'll be required to pay taxes on the amount
- If you don't use the money towards your first home purchase, you'll lose the 'tax-free-withdrawal' benefit