What is the First Home Savings Account?
The first home savings account, or FHSA, is a new savings tool to help first-time homebuyers purchase a home by offering tax advantages. It is intended to help Canadians realize their dream of homeownership by encouraging responsible financial planning. As the name suggests, it can only be used to help fund the purchase of your first home.
How long have FHSAs been around?
The FHSA became available on April 1, 2023, as part of the federal government's efforts to assist first-time homebuyers in saving for their future home.
How does an FHSA work?
The FHSA is similar to a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA). As with those accounts, you contribute funds which can be invested in securities like stocks and mutual funds, and/or kept in cash and its equivalents.
Like an RRSP, eligible contributions into the FHSA are tax deductible. The contribution limits for the FHSA are set at $8,000 per year, up to a lifetime maximum of $40,000, whereas for RRSPs the yearly contribution limit is based on 18% of the income you earned last year, up to a maximum limit ($30,780 for 2023). There is no lifetime maximum. FHSAs, like RRSPs and TFSAs allow you to carry forward unused contributions to the following year, but the maximum FHSA contribution room you can carry forward to another year is $8,000.
Withdrawals from the FHSA are tax free, similar to a TFSA, but only when buying a qualifying home.
What are the benefits of an FHSA?
The main benefit of an FHSA is the opportunity to tax efficiently save for your first home while also reducing your overall tax burden. In addition, a dedicated savings account for your first home purchase means you don’t have to use your other accounts for this purpose, and it complements the existing Home Buyers Program (HBP) that lets you use a portion of your RRSP for your home purchase.
Another benefit of the FHSA is that it encourages goal-oriented savings by specifically targeting home ownership, making it compatible with the kind of holistic financial planning recommended for new dentists.
How is the FHSA different from the Home Buyers Plan (HBP)?
The HBP lets you withdraw up to $35,000 (subject to eligibility and conditions), from your existing RRSPs to buy or build a qualifying home for yourself. The key difference is that you must repay the HBP funds back into your RRSPs within 15 years, starting in the second tax year after you took out the funds while there is no need to pay back eligible FHSA withdrawals.
The good news is that you can take advantage of both programs to buy your first home, if you meet all the conditions at the time of each withdrawal. For more on the HBP see the Canada Revenue Agency’s website.
Who can open an FHSA?
To open an FHSA, you must meet the following eligibility criteria:
- Be a resident of Canada.
- Be between 18 and 71 years old (as of December 31 of the year you open the account).1
- Have a valid Social Insurance Number (SIN).
- You must be a first-time home buyer.
Why is an FHSA a good fit for dentists?
Dentists generally attend school longer and graduate with more debt than other professionals. That can mean delaying home ownership for longer than those with less student debt. Opening an FHSA now and working with a CERTIFIED FINANCIAL PLANNER® – like the Investment Planning Advisors at CDSPI Advisory Services Inc. – to build a risk-appropriate portfolio can greatly assist new dentists in their journey to homeownership.
How do you start an FHSA?
Opening an FHSA is a straightforward process, but figuring out how to maximize its benefits while continuing to contribute to RRSPs and TFSAs may be more complicated. The Investment Planning Advisors at CDSPI Advisory Services Inc. take the time to understand your unique needs and provide objective, unbiased advice. There is no cost to access CDSPI’s services for members of a participating dental association, and our advisors are non-commissioned, which means they put your interests first.
If you’d like to learn more about the First Home Savings Account and how to realize your dream of home ownership faster, book a meeting with one of our advisors today.
1 In certain provinces and territories, the legal age at which an individual can enter into a contract including opening a FHSA is 19. You must be at the age of majority in your province of residence.
The information contained in this article is of a general nature only and should not be considered personal investment or financial advice. For specific advice about your situation, please consult with your financial advisor. Information contained in this article is subject to change without notice.