How does an FHSA work?
Eligibility
To be eligible to open an FHSA, you must:
- Be a resident of Canada.
- Be at least 18 years old (19 in provinces where 19 is the age of majority).
- Be 71 years of age or younger on December 31st.
- Not lived in a home owned by you or your spouse/common-law partner in the year that the account is opened, or the previous four years.
- Not have had a previous FHSA used to buy a home.
Contribution rules and limits
Making contributions to the account
You can contribute up to $8,000 per calendar year and up to a lifetime maximum of $40,000 over a 15-year period.
Carrying forward contributions
You can carry forward up to $8,000 of unused contribution room to future years as long as you have opened an FHSA.
You may hold more than one FHSA account, but the annual and lifetime limits are per person, not per account.
Over-contributions
There will be a 1% tax penalty per month for contributions over the FHSA contribution limit.
At the beginning of each year your contribution limit is reset, so over-contributions from the previous year may be reduced or completely eliminated by the current year's FHSA contribution room.
Spousal contributions and attribution rules
Only you can contribute to your FHSA. While your spouse/partner cannot contribute to your FHSA, they can gift you funds to contribute, without attribution. You will receive the corresponding tax deduction, not your spouse/partner.
Withdrawals and transfers
Using funds to purchase a home
You will have 15 years from account opening to use the funds in the FHSA toward a qualifying purchase. If two people are purchasing a home together, you may both use your own FHSA funds toward the purchase, giving you a combined maximum of $80,000 plus investment growth if you both contributed the full amount. FHSA withdrawals can be made as a lump-sum, or as a series of smaller payments.
You must close your FHSA by December 31st of the year following the year of your first FHSA withdrawal, and another FHSA cannot be opened in the future.
What happens if funds aren’t used towards a home purchase?
If FHSA funds are not used within 15 years from account opening, or by December 31st of the year you turn 71, you will have the option to transfer the accumulated funds into your RRSP/RRIF, even if you don't have contribution room. Transfers to an RRSP/RRIF are not taxable upon transfer, but withdrawals from the plans are taxable as income upon withdrawal, and withholding tax will apply. If funds are not used or transferred after 15 years, or by December 31st in the year you turn 71, you must withdraw the funds as taxable income and close the account.
Withdrawal rules
The Canadian government has established specific rules to withdraw funds from an FHSA and avoid paying taxes.
- The funds must be used toward the purchase of a qualifying first home, such as:
- A housing unit in Canada.
- A share in a co-operative housing corporation that affords the individual an equity interest in a housing unit in Canada.
- The qualifying home must be used as the individual’s principal home.
The definition of first-time home buyer at the time of withdrawal is different than when opening an FHSA account. At withdrawal, you are a first-time home buyer if you did not live in a qualifying home that you owned or owned jointly at any time in the year of withdrawal, or the previous 4 calendar years.
If you withdraw the funds with the intent to buy or build a home, you must have a written agreement to do so by October 1 of the year following the first withdrawal, and be living in the home as your primary residence within one year of purchase.
Taxes
- Contributions are deductible. However, you can choose not to deduct your contribution the year you contribute and carry it forward to deduct in a later tax year if you wish.
- Withdrawals are tax free, according to the Canadian government, if the funds are used toward the purchase of a qualifying first home.
- FHSA investment income, losses and gains will not be included when determining income for tax purposes, or to determine eligibility for income-tested benefits and credits.
- Transfers to another FHSA, RRSP or RRIF are not taxable upon transfer, but withdrawals from the plans are taxable as income, unless used towards the purchase of a qualifying home.
How we can help
If you or someone close to you is thinking of buying their first home, we can help. An Edward Jones advisor can develop a savings strategy while helping you navigate the different account options available.
