The details are finally available!
The new saying FHSA
The details are finally available!
The new saying FHSA
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What you need to know about the new Tax-Free First Home Savings Account (FHSA)
The rate of homeownership among people aged 30 to 34 fell to 52.3% in 2021 from 59.2% a decade earlier, after housing prices soared without earnings growth to match.1
Why your clients should consider the FHSA for their home ownership goals:
• The FHSA is a new registered savings plan aimed at helping Canadians save for their first home. The FHSA offers prospective first-time home buyers the ability to contribute up to $40,000 tax-free.
• Contributions to an FHSA are tax-deductible like an RRSP, and like a TFSA, income and gains inside an FHSA, as well as withdrawals toward the purchase of a first home, are tax-free.
• FHSA withdrawals and withdrawals under the Home Buyers Plan provision under the RRSP can be combined for the same qualifying home purchase, meaning a greater contribution toward your clients’ down payment.
• Under the legislation, the earliest date an FHSA can be offered is April 1, 2023, and FHSA accounts will be available through Fidelity shortly after.
Look out for future updates on when the FHSA becomes available through Fidelity.
First proposed in the 2022 federal budget, the FHSA will allow first-time homebuyers to save for a down payment on a tax-free basis. Like with an RRSP, contributions to an FHSA will be tax-deductible, and withdrawals to purchase a first home — including from investment income — will be non-taxable, like with a TFSA. There will be an annual contribution limit of $8,000 and a lifetime contribution limit of $40,000.
The HBP allows first-time homebuyers to withdraw up to $35,000 from an RRSP to buy a home.
Therefore, a homebuyer maximizing both programs will be able to access $75,000 in capital for a down payment, plus any growth in the FHSA.
First-time homebuyers can use FHSA and HBP, feds propose | Investme...
Discover the First Home Savings Account - FHSA
What is First Home Savings Account?
This new registered plan would help first-time home buyers save $40,000 on a tax-free basis. Contributions are tax deductible (Like a Registered Retirement Savings Plan - RRSP), and withdrawals to purchase a first home —including from investment income — would be non-taxable, like a Tax-Free Savings Account (TFSA).
The Budget 2022 announced key design features of the FHSA, including an $8,000 annual contribution limit in addition to a $40,000 lifetime contribution limit.
FHSA expected to be available at some time in 2023, with Canadian clients able to contribute the full annual limit of $8,000 regardless of the implementation date in that year.
Key Points for opening and closing this account
To open an FHSA, an individual must:
Be a Resident of Canada
Have Minimum 18 years old
Must not have owned a home in year account is opened and 4 previous years
An FHSA of an individual would cease to be an FHSA, and the individual would not be permitted to open an FHSA, after December 31 the year in which the earliest of these events occurs:
The fifteenth anniversary of the individual first opening an FHSA; or
The individual turns 71 years old.
Any savings not used to purchase a qualifying home could be transferred on a tax-free basis into an RRSP or Registered Retirement Income Fund (RRIF) or would otherwise have to be withdrawn on a taxable basis. Individuals that make a qualifying withdrawal could transfer any unwithdrawn savings on a tax-free basis to an RRSP or RRIF until December 31 of the year following the year of their first qualifying withdrawal.
Will work like TFSA
Rules on prohibited and non-qualified investments will mirror other registered plans, including penalties
These rules are intended to disallow investments in entities with which the account holder does not deal at arm's length, as well as investments in certain assets such as land, shares of private corporations and general partnership units.
The lifetime limit on contributions would be $40,000, with an annual contribution limit of $8,000. In other words, individuals would be subject to the lesser of their annual limit and remaining lifetime limit. The full annual limit would be available starting in 2023.
Annual calendar limit of $8000 - Unlike RRSPs, contributions made within the first 60 days of a given calendar year could not be attributed to the previous tax year.
Can hold more than one FHSA but the total amount that an individual contributes to all of their FHSAs could not exceed their annual and lifetime contribution limits
Contributions made to an FHSA following a qualifying withdrawal being made (i.e., when buying a first home) would not be deductible from net income.
To be a qualifying withdrawal (non-taxable):
Taxpayer must not have owned a home at any time during the year of the withdrawal or FOUR prior years. Exception: can make withdrawal within 30 days of moving into new home
Must have written agreement to buy or build a qualifying home before October 1 of the year following withdrawal and occupy as principal residence within 1 year after buying or building
If qualified, withdrawal may be a single withdrawal or a series of withdrawals
If withdrawal is not qualified as above, the withdrawal is taxable and subject to withholding rates consistent with RSP withdrawals
FHSA funds can be transferred tax-free into FHSA, RRSP or RRIF
Transfers do not affect individual’s RRSP limit and do not reinstate FHSA limit
Can transfer from RSP to FHSA tax-free, subject to annual and lifetime FHSA limits. These are not deductible and do not reinstate RRSP limit room.
HBP will continue to exist. Individual may not both FHSA and HBP withdrawal for same house purchase
No spousal accounts or contributions allowed. Spouse may provide funds for FHSA contribution without any spousal attribution.
Upon marital breakdown, an amount may be transferred from FHSA into FHSA, RRSP or RRIF tax-free
Like TFSAs, 1% tax per month for over-contributions.
Upon death, treatment will be like TFSAs. Tax-Free to spouse as successor annuitant or tax-free spousal rollover to FHSA/RRSP/RRIF. All other cases, payments are to beneficiary, subject to withholding tax and taxable to the beneficiary.
If FHSA holder becomes a non-resident, they may continue to contribute, but cannot make a qualifying withdrawal. Withdrawals by non-residents are subject to withholding tax.
FHSAs would not be afforded creditor protection under the Bankruptcy and Insolvency Act.
Like TFSAs, FHSAs will be reported annually to CRA. Withdrawals (qualifying and non-qualifying) must be reported on a tax slip.
Source 2022-08-09: https://www.canada.ca/en/department-finance/news/2022/08/design-of-...
Individuals will also be permitted to transfer funds from an RRSP to an FHSA on a tax-free basis, subject to the FHSA annual and lifetime contribution limits. These transfers would not be tax deductible and will not reinstate an individual’s RRSP contribution room.