The FHSA: Here are its features, eligibility, and availability

The government launched the First Home Savings Account (FHSA) back in April. As a tool designed to help new home buyers save up for the housing market, this product received lots of attention when it was announced. However, until recently, major Canadian banks were not yet offering the FHSA to customers. The good news is that many institutions now have the product available for future home owners! Here’s a quick overview of how the FHSA works.

The FHSA’s big features

The FHSA combines the best of both worlds from the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Users can contribute up to $40,000 to their FHSA that they plan to use towards the purchase of a home. The maximum annual contribution is $8000. The benefit of this account is that contributions are tax-deductible, but withdrawals are also tax-exempt. This allows users to add in, and take out, money from their FHSA without any tax implications. The idea is that borrowers can dedicate their savings to a home purchase with this account, without the drawback of having to pay taxes on them.

Who can use it?

The FHSA has regulations and rules around who can open an account, and what is needed for it. Eligible borrowers must be Canadian residents aged 18 or 19 (depending on the province). The age of majority here in Nova Scotia is 19. They must also be a first-time home buyer, but the definition of a first-time home buyer is a bit complex. The borrower must not have owned a home within the last four years, nor can they live in a home owned by their spouse. A person is not considered a first-time home buyer in this situation, even if they do not own a home themselves. 

While withdrawals are tax-free if used for a home purchase, withdrawals that are not used to buy a home will be taxed as income. Also, an account can only be open for 15 years. It’s important to actively plan to buy a home, and be prepared to start making contributions, if you decide to open an account.

Get in touch with a broker

Since the FHSA is a new product, many borrowers still have lots of questions about how they work and their eligibility. As more major institutions begin to offer the FHSA, and more information becomes available, the process will likely become a bit easier to understand. However, the good news is you can get in touch with a mortgage broker to help you out! We can sit down with you and discuss your home buying plans, and whether an FHSA is a good option for you. We can also help you find the appropriate financial institution for this product. Questrade, RBC, and Fidelity Investments have all opened their doors to FHSA users. CIBC, BMO, Scotiabank, and TD are all set to make the FHSA available by the end of 2023. 

The FHSA is likely to be a popular option for first-time home buyers. If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770, or contact us here.