CANADIAN RESIDENTS HAVE A NEW SAVINGS/INVESTMENT ACCOUNT THAT IS THE ABSOLUTE BEST THING YOU COULD ASK FOR IF YOU’RE EVER WANTING TO BUY A HOME
Move over TFSA, get out of the way RRSP. You’re both now 2nd fiddle to the FHSA. That’s right folks, the First Home Savings Account is the absolute best registered savings/investment account available for anyone that is saving for their first home. How much better is it then the RRSP and TFSA for saving for new home? It’s like comparing the Toronto Maple Leafs in the regular season and in the playoffs, so it’s not even close. The FHSA is awesome (regular season Leafs), and the other is okay but just not good enough (playoff Leafs).
So what is the FHSA? The FHSA is a registered savings account created by the Federal Government (like the TFSA and RRSP) designed solely for saving the down payment for you first home. It combines the two biggest advantages of the TFSA and the RRSP.
What advantages? Any contributions to the FHSA are tax deductible just like the RRSP. So if you contribute $5000 you can now deduct that amount from your taxable income, lowering your income tax, giving anyone on a traditional income a refund come tax time. Furthermore, it also has the tax free growth of a TFSA, so any income or capital gains that the contributions generate are tax free. ALL CONTRIBUTIONS ARE TAX DEDUCTABLE ON THE WAY IN AND ALL FUNDS COMING OUT ARE TAX FREE. I normally don’t agree with the Liberal Gov’t… but this is awesome.
What’s the catch? Not much really. Yes, there’s some rules but they are pretty forgiving and the program really is for everyone, and everyone should be taking advantage of it if you have not bought your first home, but plan to some day.
– You have to be 18 to open the account, be a tax resident of Canada, and have not owned a home in the previous 4 calendar years.
– You can contribute $8000 per year and unused contributions can roll forward
– Lifetime contribution maximum of $40,000
– Contributions deducted at income tax time
– The account expires 15 years after you open it
– Any unused funds can be rolled into your RRSP without penalty regardless of RRSP contribution room
Here is a great some link that goes way further into details:
OR JUST GOOGLE IT AND GO NUTS
How to best use this new account?
For most people the best way to use this account is exactly how it is intended. Just open the account at any financial institution of your choosing (bank, online brokerage, or with a financial advisor). You don’t want to hold the contributions in cash but you don’t want to be risky either because you do have relatively short investment period compared to a retirement account. In today’s environment I’d suggest GIC’s and in a low interest environment I’d go with a low risk ETF or Mutual Fund. Prioritize the FHSA over any other savings account, take the tax break and just do the time that saving requires. Then buy your home when the time is right. Then worry about building your TFSA and RRSP.
Want some shrewd ways to use this new account? I’m glad you asked. Even if you have been saving for a down payment and are close to buying you should still open the account and stick as much in as you can. Why? To generate the tax deduction. Even if you’re buying in May, open the account April 1st and throw in the max 8k, then take it out at purchase time, that will generate an $8000 tax deduction which creates somewhere between a $1500-$3500 tax savings (depending on your tax bracket). Buying with a spouse? Then both do it and throw 4k in your pocket with the tax refund.
If you were planning on using funds in your TFSA, transfer them to a FHSA to generate the tax deduction. If you were planning on using funds in your RRSP transfer them to your FHSA to avoid the repayment clause that is associated with taking funds from the RRSP. Yes, you can transfer penalty free, you just have to stay within the contribution limits of the FHSA.
Here’s another suggestion for any wealthier eyeballs we have. Get your young adult children to open an account and get depositing the max ASAP. The tax deductions won’t count for you, but they will for your kids, and they can roll them forward and take advantage of them in their higher earning years.
Bottom line is this. This is now THE SAVINGS ACCOUNT FOR PURCHASING A HOME. You should get one opened up right away. If you need advice on where to go to get one opened up feel free to reach out to me and I’ll steer you in the right direction.
That about covers it, thanks for your time, I hope you enjoyed the read.
Centum Mortgage Professional