The Canadian Government has introduced the Tax-Free First Home Savings Account (FHSA) to assist Canadians in saving for their first home. This account allows individuals to save up to $40,000 for their first home, with the advantage of being tax-free. Eligible Canadians, who are at least 18 years old, can open the FHSA starting from April 1, 2023.

Key features of the Tax-Free First Home Savings Account include:

  • Contribution Limit: Individuals can contribute up to $8,000 per year to the FHSA.
  • Usage Period: The funds in the FHSA must be utilized for a qualifying home purchase within 15 years of opening the account or before the account holder turns 71, whichever comes first.
  • Eligibility: The FHSA is available to Canadian residents who have never owned a home before.
  • Spousal Ownership: If a spouse owns a home, the individual may not be eligible for the FHSA, unless they separate and do not reside in that residence for at least four years without purchasing another property.
  • Unused Funds: Any remaining money in the FHSA can be transferred to an RRSP or RRIF without affecting RRSP contribution room. Alternatively, it can be withdrawn with tax withholding and deposited into a chequing account or reinvested in a TFSA.

It is important to note that the Tax-Free First Home Savings Account differs from the Home Buyers’ Plan (HBP), which permits first-time homebuyers to withdraw up to $35,000 from their registered retirement savings plan (RRSP) specifically for a down payment. While the HBP offers tax-free funds for down payment purposes, the FHSA provides tax benefits on the gains from savings and investments.

In conclusion, the Tax-Free First Home Savings Account aims to facilitate home ownership by providing Canadians with a tax-free savings option for their first home. It offers flexibility in contributions, a designated usage period, and certain eligibility requirements to ensure it is utilized effectively for the intended purpose.

Learn more here.

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