First Home Savings Account for Canadian newcomers is the best option for Canadian people buying a home for the first time. This account happens to be the best investment tool and source of savings to level up their game in the housing market.
The FHSA is a registered savings account reflecting a blend of tax-free savings accounts and registered retirement savings plans. Also, this account enables individuals or newcomers in Canada to utilize the money in it toward their first home’s down payment.
First Home Savings Account for Canadian Newcomers – Key highlights
FHSA is a kind of registered account that enables individuals to put in $8,000 per year, with a lifetime restriction of up to $40,000, in order to secure savings for their first home purchase.
The implementation of these accounts began on April 1, 2023. Notably, in recent months, there has been a drastic improvement concerning the availability of the FHSA accounts. Overall, we can expect the availability of more such accounts in 2023.
The amount in the FHSA is useful for buying several investment products, including Guaranteed Investment Certificates, bonds, stocks, and mutual funds.
Whatever investment profits you gain, stay assured that there will be no tax payments on your part.
While purchasing your first home in Canada, you will need to apply for a FHSA confirmation about your eligibility for the same. If you are eligible, you will have permission for a qualifying withdrawal.
First Home Savings Account withdrawals
There are specific criteria that newcomers must fulfill to have a qualifying withdrawal. Being able to meet these requirements will allow you to extract the complete amount from your FHSA without any tax.
However, your decision will be whether you choose to withdraw the amount altogether or at intervals. Notably, more than one withdrawal will imply too many requests and form submissions on your part.
To get tax-free fund withdrawals, you must fulfill the following criteria:
- Be a home-buyer for the first time.
- You must be residing in Canada during the time of withdrawal.
- It is vital for you to own the qualifying home as your principal residence place or at least to intend the same within one year of purchasing it or constructing it.
- You must have a formal agreement prior to October 1 of the year following the withdrawal date for the purchase or building of an eligible house.
- Make sure you don’t have not acquired the home over thirty days prior to withdrawal.
- It is mandatory for you to have Canadian residence from the first time of your qualifying FHSA withdrawal until the acquisition of the eligible home.
Non-Qualifying withdrawals
The withdrawal of your FHSA funds without being able to meet the criteria of a qualifying withdrawal will lead to a taxable withdrawal.
The total withdrawal amount will be taken into account as income in the tax year. It indicates the year it will be withdrawn. Also, a tax will be levied on the amount identical to the RRSP.
The withholding tax might or might not offer coverage for future tax prospects. Moreover, it will entirely depend upon the complete value of taxable income. There will be other factors, including credits, and deductions, etc.
FHSA Eligibility
In order to have a First Home Savings Account, you must fulfill the following conditions:
- Be a Canadian resident.
- Become 18 years old.
- You must be a home buyer for the first time.
The federal government states that the following factors make you a first-time home buyer:
- If you have not possessed a house in which you resided during any time of the Calendar year before the FHSA opening.
- In case, you have not owned a house in which you resided at a given time in the following four Calendar years.
You won’t be eligible for the FHSA if you possess a property through beneficial ownership.
FHSA and its advantages when buying a home
The following are the advantages of FHSA while buying a home:
Tax advantages
The FHSA tax advantages prove to be advantageous. Lesser tax payments or a significant refund could help you to invest an extra amount toward your home-buying savings. It will contribute to your yearly FHSA savings or get into different savings or investment sources. The tax refund improvement level might help you repay your other debts and enhance your credit status.
Much better than the Home Buyer’s Plan
You might use your RRSP savings for the first-time home purchase for up to $35,000, which will be more beneficial compared to the Home Buyer’s Plan. The contribution limit of the FHSA is higher than the Home Buyer’s Plan. Also, the FHSA will never demand the repayment of the amount withdrawn.
No upper limit
You might contribute a maximum amount of $40,000 to your First Home Savings Account for a lifetime. Buying a house for the first time is a lifetime achievement. The FHSA will enable you to set a fixed amount and increase your savings growth for home purchases.
