Serving Individuals, Businesses, Charities and NPOs
This is something very interesting and potentially quite useful to those who qualify. It was announced earlier in 2022. Anyone who qualifies should consider contributing to a First Home Savings Account (FHSA) in 2023 or after.
It provides prospective first time home buyers the ability to save up to $40,000 on a tax free basis towards the purchase of a first home in Canada.
Contributions of up to $8,000 per year are allowed and are tax deductible
Withdrawals to purchase a first home, including any investment income or growth earned in the account are non-taxable.
Some things to be aware of
There is a one percent per month penalty for over contributions
A FHSA is permitted to hold the same types of qualified investments currently allowed for a TFSA or RRSP. Please be aware there are penalties for other prohibited investments.
There are some specific rules on the timing of withdrawals. For instance, you can not acquire a home more than 30 days prior to the withdrawal.
You must intend to occupy the home as your principal place of residence and it must be in Canada.
Transfers
You can transfer funds from one FHSA to another, or to an RRSP or a RRIF, all on a tax free basis. However, funds transferred to a RRSP or RRIF will be taxed upon withdrawal. Such transfers will not affect your RRSP contribution room or the FHSA limit.
No spousal plans
Unlike an RRSP, there is no direct spousal contribution allowed. However, you can give your spouse or common law partner the funds to make their own FHSA contribution.
Successor/ Beneficiary designation
Just like TFSAs, you can designate your spouse or common law partner as the successor account holder, so the account can maintain its tax exempt status if you die.
If someone else is designated as a beneficiary the funds would generally need to be withdrawn and paid to the beneficiary, who would be taxed on them.
SOME Other issues
Interest on money borrowed to contribute to contribute an FHSA will not be tax deductible.
You will not be able to pledge FHSA assets as collateral for a loan.