A First Home Savings Account (FHSA) refers to a type of savings account designed to help individuals save money for a down payment to purchase their first home. The account offers certain tax advantages to encourage individuals to save for homeownership.
Here are some key features and details regarding the First Home Savings Account in Canada:
Eligibility: To be eligible for an FHSA, an individual must be 18 years of age, a Canadian resident and a first-time homebuyer. Generally, this means that you have not owned a home within the last four years.
Types of FHSAs: Financial institutions offer a depository FHSA that holds money or GICs. Trust companies offer a trusteed FHSA that holds money, GICs, bonds, mutual funds, and stocks. An annuity provider offers an insured FHSA that holds an annuity contract. All of the above FHSA accounts would be managed by the financial institution, trust company or annuity provider. Lastly, you can open a self-directed FHSA account that you deposit money into and manage yourself by buying different types of investments.
Contributions: The FHSA allows individuals to contribute up to $8,000 a year between January and December. The contribution limit may change from year to year, so it is essential to stay updated on the current limit. Over the life time of the account you can contribute to a maximum of $40,000 dollars.
Tax Advantages: A benefit of an FHSA is that the investment income earned within the account is tax-free. This means any interest, dividends, or capital gains generated by the funds in the account are not subject to taxation. Another worthy benefit, is individuals can claim the contributions made to their FHSA to decrease their taxable income for the year, similar to RRSP contributions. This will help to decrease the amount of taxes that may be owed or help to generate a higher tax return.
Withdrawals: The funds in an FHSA can only be withdrawn for the purpose of purchasing a qualifying home. If you withdraw money for any other reason, it will be considered a non-qualifying withdrawal, and you will have to add it to your income and be taxed on it at the end of the tax year.
Time Limit: The funds accumulated in an FHSA can be carried forward for 15 years. Within that time period you have to withdraw these funds to use for the purchase of a house. If you still haven’t purchased a house after 15 years then you have to transfer the money to your RRSP or RRIF tax free. If you choose to withdraw the funds then you will be designated as taxable income.
This is a quick overview of the FHSA account. For further detailed information click on the link below:
Canada First Home Savings Account
| This blog is for general information and educational purposes only and is not financial advice nor should it be substituted as professional advice. Before taking any financial action based upon any information, you should consult with the appropriate professionals. THE USE OR RELIANCE OF ANY INFORMATION CONTAINED ON THIS SITE IS SOLELY AT YOUR OWN RISK. |
