Are You Ready for the First Home Savings Account? Here Is All You Need To Know!

The wait is over; First Home Savings Account (FHSA) is finally here. Beginning April 1 2023, it has been incorporated as a fully functioning program that first-time home buyers can use to make their home purchase a lot easier.

When home prices surged in Canada amid the Covid-19 low-interest rate environment, the Canadian dream of home ownership fell out of reach for many would-be first-time home buyers. Although things started to stabilise when the bank of Canada rigorously started to tighten the rate cycles, they still need to do more. It was clear that more needed to be done, and the FHSA was a step in the right direction.

What Is FHSA and How Does It Work?

First introduced in the 2022 budget with the sole purpose of countering housing affordability and helping millions of first-time home buyers over five years, FHSA is essentially a tax-free savings account. You can open this account through any qualifying issuers, such as a bank, credit union or trust/insurance company. You can also have multiple FHSA accounts through multiple issuers, but it must be within the participation limit for that year, which is $8,000 annually.

For example: If the annual contribution limit for an FHSA is $8,000 and an individual has already contributed $2,000 to their FHSA in a given year, then their participation limit would be $6,000. This means they could contribute up to $6,000 more to their FHSA in that year without exceeding the annual contribution limit.

FHSA holders will also be able to roll over their unused contribution limits from year to year. For example, if your 2023 contribution limit was $8,000, but you only gave $4,000, your 2024 limit would be $12,000.

You must be at least 18 years old and a Canadian resident to create an account. In addition, you must be a first-time buyer, meaning you have never possessed a primary residence in the calendar year before opening your account or in the four years before that. The account holder has until December 31 of the year in which they turn 71 or 15 years have passed, whichever happens first. When these criteria are satisfied, the account holder may request a single withdrawal or a series of withdrawals. The funds would be moved tax-free to an RRSP or a Registered Retirement Income Fund if they weren’t withdrawn or spent.

Here’s the best part under the new legislation: the applicants can now withdraw from both FHSP and HBP, making the total amount they can put towards purchasing a new home a whopping $75,000.

Want To Apply Right Away? But You Might Have To Wait for a Little.

As you are reading this, all Canadian banks, especially the big six are in the process of submitting something called an application package to the Canadian revenue agency, CRA. It is only after the CRA reviews and approves these applications that the many Canadian banks will be able to offer and accept applications for the FHSA. This means that even though the plan is up, it’s not running, as you have no way to apply for it at the moment.

Most banks, including Royal Bank, Bank of Montreal, and TD Bank, have assured that the account will be available to open in Mid-2023 while all banks should have it by the end of the year. No matter the case, you can rest assured that it will be available sooner than later, so if you wish to make the best of it, you need to start planning your move now.