What to know about the First Home Savings Account (FHSA)

Advice March 7, 2023

This unique savings plan would give first-time home buyers the option to save up to $40,000 on a tax-free basis! “The government expects that Canadians will be able to open and contribute to an FHSA at some point in 2023. No matter when this happens in 2023, Canadians would be allowed to contribute the full $8,000 annual limit in that year. “

Here is what you need to know about the First Home Savings Account (FHSA):

  • To open an FHSA, an individual must be a resident of Canada and at least 18 years of age. In addition, an individual must be a first-time home buyer.
  • Contributions to your FHSA are tax-deductible and withdrawals are tax-free if they are put towards a home purchase.
  • Once you open your FHSA, you can contribute up to $8,000 per year, and up to $40,000 during the lifetime of the account.
  • Individuals would be allowed to carry forward unused portions of their annual contribution limit up to a maximum of $8,000. Carry-forward amounts would only start accumulating after an individual opens an FHSA for the first time.
  • Your FHSA expires after 15 years once opened, or when you turn 71 (whichever one comes first)
  • Your FHSA can be used to trade/invest in assets like stocks, ETFs and more. This gives your FHSA the potential to grow beyond the $40,000 contribution limit.

Here is an example of this in real time: *Disclaimer* This is not legal, tax or accounting advice. For illustrative purposes only.

Let’s say your salary is $55,000 per year in which you would pay roughly $15,100 in income taxes if you are in Ontario. If you maximize your annual contribution limit of your FHSA of $8,000, your new taxable income is $47,000, in which you pay roughly $12,379 in income taxes instead – that’s $2,721~ in savings on your annual taxes!!!

If you keep up this method for 5 straight years to max out your FHSA at $40,000. You will have saved around $13,605 in income taxes over that period because the contributions you make to your FHSA are tax-deductible.

And from the investment side of things, let’s say your initial contribution was the full $8,000 and you contributed $667 per month, each year, so you use your annual contribution limit, invested in an asset to return a modest 3% interest rate over this 5 year period, compounded annually. Your total investment would be worth around $51,768.52, with only having contributed $40,000… And the best part is you saved even more money with your tax deductions along the way. When you go to withdraw this amount for your first home purchase, it will be tax free!

This is a great opportunity for first time buyers who are looking to save/invest their money while also being able to take advantage of tax-deductions.

Please keep in mind, this is not legal, tax or accounting advice. This is for illustrative purposes only. We recommend speaking with your local accountant and financial advisor to help you with next steps. This is merely a rough guideline of the FHSA and an example for illustrative purposes. For more information from our Canadian Government website, click here!