A new way to save for a downpayment, tax-free – The First Home Savings Account (FHSA)
Saving for your children or grandchildren can be a wonderful way to provide them with financial support, invest in their future, and set them up for success.
The new FHSA can help them achieve homeownership with your support sooner. Building a meaningful down payment has become even more important to first-time home buyers. To make it easier to develop that down payment, the federal government has created a new type of registered account to help new housing market candidates save for a down payment: the Tax-Free First Home Savings Account (FHSA).
How YOU Can Help
If you’re a parent or grandparent, encourage your child or grandchild to open their own FHSA.
You can contribute to their future by gifting funds, tax-free, to allow them to make annual contributions towards their first home. By gifting the funds, it allows for sensible ways to transfer wealth.
Unique Features
Combine the best features of an RRSP, which gives tax-deduction perks, and a TFSA, which lets the investments grow without a tax bill. Individuals may carry forward the unused portions of the annual contribution limit up to a maximum of $8,000, subject to the lifetime contribution limit. This allows an individual contributing less than $8,000 each year to contribute the unused amount in a subsequent year, in addition to their annual contribution limit. Income and gains earned are not included in annual income for tax purposes.
When it comes time to purchase a first home, withdrawals will not be taxed, so more goes towards the down payment.
Plans Change?
The perfect home hasn’t been found? No stress!
Account holders can transfer the funds from their FHSA to an RRSP or RRIF without incurring tax. Keep in mind, if the funds are used for another thing else, they will be subject to tax.
How to Get Started
For individuals who match the requirements, residing in Canada, aged at least 18, and qualifying as a first-time home buyer, taking the first step is as straightforward as reaching out to Orr Insurance.
This article was provided by Jessica Klumper, Associate.
