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A First Home Savings Account allows you to save for a down payment without paying tax on your account contributions or on your investment earnings.

The Federal government recently introduced the First Home Savings Account (FHSA), an investment account registered with the Canada Revenue Agency (CRA) that allows you, as a prospective first-time homebuyer, to set aside a certain amount of tax-free money each year towards the purchase of your first home in Canada. The FHSA combines certain features of the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). The amount you contribute to the FHSA is tax-deductible, and withdrawals to purchase a qualifying home are non-taxable, including the income gained from investments inside the account.

You can work with a registered investment advisor to decide which investments you would like in your FHSA and how they can help you reach your home ownership goals. Some discount brokers and investment account platforms also offer FHSAs if you prefer self-directed investing.

Opening an FHSA

In British Columbia, you must be at least 19 years old to open an FHSA. You (and your spouse if you’re married) also must be an eligible first-time homebuyer who hasn’t owned a home in the past four calendar years. Learn more about the first-time homebuyer criteria and how it’s determined.

Before opening your FHSA, be sure to do the following:

  • Check which types of investments you can purchase through the account and through your advisor (if you are advised). For example, some advisors are limited to only selling certain types of investment vehicles.
  • Ask questions about the charges and fees related to the investments you purchase.
  • Shop around to compare fees and charges at other firms.

To open an FHSA, you will need to provide accurate information about your personal and financial circumstances. The Opening an Investment Account: A Guide for Investors from the Canadian Investment Regulatory Organization (CIRO) discusses the ins and outs of opening different types of accounts.

Contributing to an FHSA

You can contribute up to $8,000 per calendar year, with a lifetime contribution limit of $40,000. Once you have an account, the rules also permit you to carry forward unused contributions of up to $8,000 in total.

Similar to RRSPs, contributions to an FHSA are tax-deductible.

If you have an RRSP account and would like to transfer funds to an FHSA, you can do so on a tax-free basis if it does not exceed your unused FHSA participation room at the time of the transfer.

An FHSA can hold various types of investments, including shares, bonds, mutual funds, exchange-traded funds (ETFs), guaranteed investment certificates (GICs), and more, giving you the ability to take on more or less risk if you so choose. You are not able to hold private securities or private placements in your FHSA. Check with your investment dealer or registered investment advisor to ensure the investments you buy qualify for your FHSA.

Withdrawing Funds

You can withdraw money from your FHSA without having to pay tax if you are buying a qualifying home. Unlike the RRSP Home Buyers’ plan, with an FHSA, you don’t need to pay this money back. If you change your mind about purchasing a home, your dealer or advisor can arrange for the direct transfer of the property in an FHSA to an RRSP without affecting your unused contribution room and without triggering tax.

Visit the CRA website for a full explanation of how withdrawals and transfers work.

Closing an FHSA

You must use your FHSA up within 15 years of opening your account or by the end of the calendar year you turn 71, whichever is sooner. After that time, you can arrange for your dealer or advisor to transfer your funds directly to an RRSP or RRIF (Registered Retirement Income Fund) tax free. However, if you choose to withdraw funds from your FHSA when you close your account, it will be taxable income.

Questions about FHSAs

Your investment dealer or registered investment advisor can answer questions about your FHSA, or you can visit the CRA website to find out more.

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