Soon there will be another acronym to benefit first-time home buyers — FHSA. It will join TFSA and HBP as ways to encourage and assist people trying to get into the real estate market by purchasing their first home,
FHSA is the Tax-Free First Home Savings Account, and omitting TF from the front of the acronym is to avoid confusion withTFSA (Tax-Free Savings Account). HBP is the Home Buyers Plan that is part of RRSPs. All three provide pathways to financing home ownership for first-time buyers.
According to Scotiabank, the FHSA that becomes available in April is “the best part of both” the other plans because contributions are tax-deductible going in and tax-free coming out…and that includes any earnings generated by the account.
The FHSA was in the Federal Government’s 2022 budget. Here’s how it will work come April for first-time home buyers:
They can contribute up to $8,000 per year for five years
Anything less than $8,000 cannot be rolled over into the next year
Maximum contribution is $40,000
Contributions are deductible each year from taxable income
There is no tax when closing the account, as long as withdrawals go toward buying a home
Funds must be used within 15 years of opening the account
To qualify, first-time buyers must be 18 years of age or older, be a Canadian resident who has not owned a home for the last five calendar years.
In the other two plans, TFSA contributions can’t be used as taxed deductions and HBP contributions must be paid back within 15 years.
The master plan for all of this is to make homes more affordable for Canadians by helping them find ways to raise a down payment.