NSI Accounting & Financial Services

First Home Savings Account Guide Blog

First Home Buyers Savings Account (FHSA) – A Comprehensive Guide

For many Canadians, owning a home is a significant life goal, a symbol of financial security, and a long-term investment. To make homeownership more accessible, the Canadian government introduced the First-Time Home Buyers’ Savings Account (FHSA). This financial tool allows prospective first-time homebuyers to save up to $40,000 tax-free, making it an attractive option for those looking to step onto the property ladder.

Eligibility Criteria

To take advantage of an FHSA, you must meet certain eligibility criteria:

  • Residency: You must be an individual resident of Canada.
  • Age: You should be at least 18 years old.
  • First-Time Buyer: You, your spouse, or common-law partner must not have owned a qualifying home that served as your principal place of residence at any time in the year the FHSA is opened or the preceding four calendar years.

It’s important to note that the ownership status of your spouse is considered only if they are still your spouse when the FHSA is opened.

Contribution Limits

Understanding the contribution limits is crucial when utilizing an FHSA. Here’s what you need to know:

  • Lifetime Limit: You can contribute up to $40,000 over your lifetime.
  • Annual Limit: The annual contribution limit is $8,000, even though the rules came into effect on April 1, 2023. This limit applies to contributions made within the calendar year.

Unlike Registered Retirement Savings Plans (RRSPs), contributions made within the first 60 days of a calendar year cannot be attributed to the previous tax year.

  • Carry-Forward: You may carry forward up to $8,000 of your unused annual contribution amount to use in a later year, subject to the lifetime contribution limit. Carry-forward amounts start accumulating after you open an FHSA.

You have the option to hold more than one FHSA, but the total contributions across all your FHSAs cannot exceed your annual and lifetime limits.

Similar to Tax-Free Savings Accounts (TFSAs) and RRSPs, there’s a tax on overcontributions to an FHSA. This tax applies at a rate of 1% to the highest amount of the excess in any given month.

Dealing with Over Contributions

If you find yourself in a situation of over-contribution, there are ways to address it:

  • Wait Until the Next Year: You can wait until the following year, and the additional annual contribution room that arises may absorb the excess contribution.
  • Request a Designated Amount: You can request that a “designated amount,” not exceeding the overcontribution, be returned to you as a tax-free withdrawal or a transfer to an RRSP. If you opt for a tax-free withdrawal, the original contribution leading to the over-contribution is not deductible.
  • Taxable Withdrawal: A taxable withdrawal would also reduce an over-contribution to an FHSA.

Lastly, like RRSPs, you have the flexibility to contribute but defer the deduction until a later year. This allows you to strategically manage your tax planning.

If you have more questions or need personalized guidance regarding FHSA or any other financial matters, don’t hesitate to reach out to us.

We’re here to help you achieve your financial goals and make informed decisions on your path to homeownership.

For expert advice and a free consultation, visit our website at Link to Free Consultation.

Book A Free Consultation Call Now:

Book a 20 minutes FREE Consultation Call with experienced and expert tax professionals & accountants. Let’s kick off your journey towards better financial planning and tax saving.

Select your convenient date and time. Choose the right category of consultation such as, Personal Tax, GST/HST, Corporate Tax, Financial Planning…etc and connect with the experts at ZERO COST.

Reserve your spot now: