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Home -> Registered Savings Plans ->Financial Planning -> Real Estate -> First Home Savings Account (FHSA)First Home Savings Account (FHSA) - Tax-FreeIncome Tax Act s. 146.6The FHSA is a registered account to help individuals save for a home. The contributions are tax-deductible and earnings in the account grow tax-free. When the funds are withdrawn to buy a home, the withdrawal is tax-free, and the funds do not have to be repaid. Qualifying individuals should be able to open an FHSA and start contributing on April 1, 2023. Not sure if you'll ever buy a home? Start an FHSA anyway, unless you're in the lowest tax bracket (TFSA may be better). If you don't buy a home with your FHSA the funds can eventually be transferred tax-free to your RRSP or RRIF, so this is a way to get additional RRSP contribution room. Funds gifted can be used as FHSA contributions, without attribution if gifted from a spouse. The FHSA has a "maximum participation period" of 15 years, which means it must either be used to purchase a qualifying home, or the funds withdrawn or transferred, within 15 years, or by the end of the year in which the individual turns 71, whichever is earlier. The legislation for the FHSA is included in Bill C-32, Fall Economic Statement Implementation Act, 2022 which received Royal Assent December 15, 2022.Tax Tips: - EVERYONE planning to eventually buy a home should open a First Home Savings Account! - This is not just for FIRST homes. FHSA TopicsWhat Can Be Purchased - FHSA Qualifying Home Who Can Contribute - FHSA Qualifying Individual How Much Can Be Contributed to an FHSA? Contributions Transferred from an RRSP to an FHSA FHSA Excess Contributions - Don't Overcontribute! FHSA Qualified and Non-Qualified Investments Taxes Payable re a First Home Savings Account Withholding Taxes on Foreign Dividends in an FHSA Buying a Home With an FHSA - Qualifying Withdrawal RRSP Home Buyers' Plan (HBP) in Conjunction with First Home Savings Plan (FHSA) Taxable / Tax-Free FHSA Withdrawals CRA and Department of Finance Resources
What Can Be Purchased - FHSA Qualifying Home
Tax Tip: 2 people can each use their FHSA as well has their RRSP Home Buyers' Plan to jointly purchase their home. Who Can Contribute - FHSA Qualifying Individual
According to the Department of Finance August 2022 Design of the Tax-Free First Home Saving Account, for this purpose, "ownership is defined broadly and includes beneficial ownership, but excludes a right to acquire less than 10% of a qualifying home". Tax Tip: If you own a home that you don't live in (e.g. you rent it out), you may still qualify to open an FHSA to save for a principal residence. How Much Can Be Contributed to an FHSA?
If an individual emigrates from Canada after opening their FHSA, they would still be allowed to contribute. However, any withdrawal made while they are a non-resident would be subject to withholding tax. Contributions Transferred from an RRSP to an FHSAFunds can be transferred tax-free from an RRSP to an FHSA subject to the annual and lifetime FHSA contribution limits, unless the RRSP is a spousal RRSP to which spousal contributions have been made in the current year or 2 preceding years.FHSA Excess Contributions - Don't Overcontribute!Income Tax Act Part XI.01 Taxes in Respect of Registered PlansThe treatment of excess contributions to an FHSA is the same as for a TFSA. If at any time your contributions exceed your annual FHSA limit in the calendar year, or exceed the lifetime limit of $40,000, you have overcontributed. The tax payable for excess contributions to a First Home Savings Account is 1% per month, for any month in which there is an excess amount at any time in the month. This means there will be tax payable even if the excess amount is withdrawn in the same month in which it is contributed. You may also be charged a penalty of 100% of any income earned from the excess contribution. Waiver of Tax Payable for an FHSAIncome Tax Act s. 207.06(3)The Minister of National Revenue may waive or cancel all or part of the tax payable regarding excess amounts if:
FHSA Qualified and Non-Qualified InvestmentsQualified and non-qualified investments are the same for a First Home Savings Account (FHSA) as they are for a Tax-Free Savings Account (TFSA). Taxes Payable re a First Home Savings AccountBesides the tax on excess contributions, tax will also be payable if the FHSA carries on a business or holds non-qualified investments. See the article on Taxes Payable re TFSA, where we've noted which taxes also apply to the FHSA. Withholding Taxes on Foreign Dividends in an FHSAWithholding taxes will be deducted from foreign dividends received in an FHSA, and these taxes are not recoverable. The Canada-United States Tax Convention (Treaty) provides for US dividends and interest to be received free of tax when earned by a trust which is generally exempt from income taxation in Canada, and which is operated exclusively to administer or provide pension, retirement, or employee benefits. S. 146.2 of the Income Tax Act states that an FHSA is deemed not to be a retirement savings plan. Buying a Home With an FHSA - Qualifying WithdrawalQualifying withdrawals to purchase a home are non-taxable if:
Owner-Occupied Home as per ITA s. 146.01(2)(a.1)An owner shall be considered to have an owner-occupied home if the individual owns, whether jointly with another person or otherwise, a housing unit or a share of the capital stock of a cooperative housing corporation and
RRSP Home Buyers' Plan (HBP) in Conjunction with First Home Savings Plan (FHSA)Although the draft legislation for the FHSA indicated that the HBP and the FHSA could not both be used for the same home purchase, this was revised in Bill C-32. This means that individuals can each borrow up to $35,000 from their RRSP through the Home Buyers' Plan as well as withdraw funds from their FHSA in order to purchase a home. If $40,000 is contributed to the FHSA and earns a reasonable rate of return, then the FHSA may be worth considerably more than $40,000 by the time a home is purchased. Tax Tip: If a home is purchased jointly, each of the joint buyers can use funds from their FHSA and borrow using the RRSP Home Buyers' Plan. Taxable / Tax-Free FHSA WithdrawalsWithdrawals other than qualifying withdrawals are taxable to the holder of the FHSA, with no attribution to a spouse or common-law partner who may have gifted the funds for the FHSA contributions. Withdrawals by a non-resident will be subject to withholding tax. Funds not used for a qualifying home purchase would have to be withdrawn (taxable) or transferred tax-free to an RRSP or RRIF by Dec 31 of the year following the year in which the earlier of these events occurs:
Transfers to an RRSP or RRIF will not be reduced, or be limited by, an individual's RRSP contribution limit. TaxTips.ca ResourcesFree in 30! - Buying a Home is a Good Investment! Line 31270 Home Buyers' Tax Credit (HBTC) Federal and Provincial Programs for Home Buyers / Home Owners Attribution Rules re Gifts, Transfers or Loans to a Spouse or a Related Minor Child CRA and Department of Finance ResourcesDepartment of Finance August 2022 Design of the Tax-Free First Home Saving Account Bill C-32, Fall Economic Statement Implementation Act, 2022 Income Tax Folio S3-F10-C2 Prohibited Investments - will eventually be revised to include FHSAs Income Tax Folio S3-F10-C1, Qualified Investments - Registered Accounts - Tax consequences - carrying on a business - will eventually be revised to include FHSAs
Revised: February 14, 2023
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