The government is moving ahead with something it floated on the campaign trail last year: a Tax-Free First Home Savings Account.
Starting next year, Canadians may contribute up to $8,000 per year to the accounts, which allow them to save and invest funds to buy a home in the most tax-advantageous way.
Currently, Canadians can use anything from a savings account to an RRSP or TFSA to save for their first home — but all come with a certain amount of tax restrictions.
RRSPs provide a tax rebate when people contribute, but any money withdrawn under the existing Home Buyer’s plan must be repaid later. Homebuyers can also withdraw up to $35,000 from their RRSP accounts.
Conversely, Canadians who use their TFSAs to save for a home can grow those funds in a tax-sheltered way, but they don’t get the tax break when they make the investment.
The new program adopts the most appealing parts of those two programs by giving savers a tax rebate for contributing and also allowing those savings to grow without being taxed on the gain. It’s “tax-free in, tax-free out,”
For a full report on Budget 2022 and Affordable Housing, click here.
FHSA limitations
The program has a maximum lifetime contribution limit of $40,000.
The government says Canadians can still access their RRSP savings under the home buyers’ plan (HBP) under the existing rules. However, they can not make both an FHSA withdrawal and an HBP withdrawal to pay for the same qualifying home.
Individuals will also be allowed to transfer funds from an RRSP to an FHSA on a tax-free basis, subject to the lifetime and annual contribution limits. If a saver does not use the money in their FHSA for a first home purchase within 15 years of first opening the account, the account will have to be closed. Any unused savings may be transferred into an RRSP or RRIF, or withdrawn on a taxable basis.
Housing affordability fund
The budget also includes $475 million in 2022-23 for a onetime $500 payment to those facing housing affordability challenges, but did not include specifics.