The FHSA: 7 Advantages Explained by a Lawyer
August 9, 2023
For the past few months, a new savings vehicle has been available to those wishing to become a homeowner: the FHSA or Tax-Free First Home Savings Account. Continue reading to learn about the 7 advantages of the FHSA as explained by a lawyer, Me Martin Fortier.
“If you think about the FHSA, there are not many disadvantages: you can reduce your taxes, you accumulate money tax-free, and there is no limit on how much you can withdraw,” explains Me Martin Fortier.
For more information on the Home Buyers’ Plan, see the article The HBP, a tool to increase the down payment of a first property.
5 advantages of the FHSA
1. Is it possible to withdraw more than $40,000?
The lifetime maximum you can contribute to a FHSA is $40,000. While this is the total you can contribute, it is possible to increase the amount you can withdraw through investments.
The financial products you can invest in a FHSA are the same as for a RRSP.
Government or corporate bonds
3. Annual maximum
You can contribute up to a maximum of $8,000 per year in this savings account. If you do not reach this amount, the unused portion will be carried over to the following year.
Contributing to a FHSA helps you save for the purchase of a first property, all tax-free, since the contributions are deductible, and helps reduce your taxable income.
5. No repayment required
Unlike the HBP, where you have 15 years to repay withdrawals from your RRSPs after you purchase a house, you don’t have to repay anything with the FHSA.
Other benefits for first-time homebuyers
The FHSA has many advantages, two of which are particularly attractive, according to Me Martin Fortier.
6. No purchase? Don’t worry!
“Let’s say you don’t buy a house. You then have two choices about what to do with your FHSA. First, you can transfer it to your RRSP, tax-free. You will not lose the maximum RRSP limit to which you are entitled as it will be considered as surplus.
If you don’t want to transfer it because you need the money, your second choice would be to withdraw it and pay the taxes according to your income tax bracket. The advantage is that when you contribute to your FHSA, there is no obligation to use the tax deduction at that time. It is possible to use it later,” states Me Martin Fortier.
7. Combining the FHSA and the HBP
They are not mutually exclusive. “If you have money in your RRSP, you can use the HBP. By contributing to your FHSA, you will benefit from two savings vehicles. If you have $40,000 in your FHSA and $35,000 in your HBP, that’s a total of $75,000, plus the tax savings and any gains generated. If you add what your partner has saved, we are talking about a good amount of money you can use to buy your first home”, mentions Me Martin Fortier.
As Me Martin Fortier says, what you need to remember about the FHSA is that it is really very flexible.