A new, innovative way to help save for homeownership
Smart tools and strategies to help first-time home buyers
It’s no surprise that the affordability of real estate in Toronto has been a hot topic lately—but if you think buying a home is out of the question, there is hope.
While the housing market continues to discourage many prospective buyers, a new government incentive, available through the First Home Savings Account (FHSA), may lower the barrier for those who dream of owning a home.
Here’s what first-time home buyers need to know about this innovative opportunity.
What is the FHSA?
The brand-new First Home Savings Account is a tax-free registered account designed to help you save, earn and meet your investment goals more quickly.
Combining some of the features of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP), the FHSA allows first-time home buyers to contribute up to $8,000 per individual, per year—and up to $40,000 in their lifetime.
To be eligible, you must be a Canadian resident aged 181 to 71 and a first-time home buyer.2 This means that you don’t already live in a home you have purchased and did not live in a home that you own in the last four years. The property you intend to buy should be your primary residence and not intended for rental purposes.
How does it work?
To benefit from the FHSA, you have up to 15 years,3 until you turn 71 or until Dec. 31 of the following year after your home’s purchase—whichever comes first.
The account has a lifetime limit of $40,000 per individual, with a maximum contribution of $8,000 annually. Any unused contribution room can be carried forward into the following year up to a yearly maximum of $16,000. Qualifying withdrawals can be taken out tax-free, and any contribution you make helps you earn income, in turn helping you meet your FHSA goals.
What other benefits does the FHSA offer?
Like TFSA withdrawals, when a qualifying withdrawal4 is made from an FHSA to purchase a qualifying home, the funds, including any income or gain, are not taxable. You can also benefit from income tax deductions for FHSA contributions made in the same year or from a previous year, so long as they haven’t already been claimed.
What if I no longer wish to use my funds to buy a property?
Any amounts withdrawn for other purposes are subject to tax.5 If you don’t withdraw for other reasons, there is an option to transfer the funds into an RRSP or Registered Retirement Income Fund in your name tax-free without impacting your existing RRSP contribution room. This makes an FHSA a helpful savings strategy even if you’re uncertain about whether you want to own or rent in the future.
Can I combine its benefits with other incentives?
Yes, the FHSA works to complement other investment tools. Coupled with the TD Mortgage Affordability Calculator, the FHSA is an innovative way to enable eligible Canadians to take their first step towards homeownership.
Book an appointment with a TD Personal Banker to set your goals using TD Goal Builder. They can help you map out a path to reach your investment goals and give you personalized advice, so you can feel confident about the road ahead.
You can also use the FHSA in conjunction with the Home Buyers’ Plan, which allows Canadians to withdraw up to $35,000 from their RRSP—subject to eligibility and conditions. However, the funds must be reimbursed to the RRSP within 15 years. With an FHSA, eligible withdrawals don’t need to be paid back.
With the First Home Savings Account, homeownership is more achievable. Book an appointment with a TD Personal Banker today to help you clarify your goals and make the most of your investments.
1 In certain provinces and territories, the legal age at which an individual can enter into a contract, including opening an FHSA, is 19. You must be at the age of majority in your province of residence and provide a valid Social Insurance Number (SIN). An FHSA cannot be opened after the end of the year you turn 71.
2 An individual is considered to be a first-time home buyer if at any time in the part of the calendar year before the account is opened or at any time in the preceding four years they did not live in a qualifying home (or what would be a qualifying home if located in Canada) that either (i) they owned or (ii) their spouse or common-law partner owned (if they have a spouse or common-law partner at the time the account is opened).
3 Based on the date on which the first FHSA is opened.
4 For a qualifying FHSA withdrawal, you must be a first-time home buyer; you must have a written agreement to buy or build a qualifying home with the acquisition or construction completion date of the qualifying home before Oct.1 of the year following the date of the withdrawal; you must not have acquired the qualifying home more than 30 days before making the withdrawal; you must be a resident of Canada from the time that you make your first qualifying withdrawal from one of your FHSAs until the earlier of the acquisition of the qualifying home, or the date of your death; you must occupy or intend to occupy the qualifying home as your principal place of residence within one year after buying or building it.
5 Each registered plan has different eligibility criteria, features and tax implications. For detailed tax information please speak to a tax advisor.