FIRST HOME SAVINGS ACCOUNT (FHSA)

The First Home Savings Account (FHSA), available since April 1, 2023 under section 146.6 of the Income Tax Act, is a registered plan designed to assist first-time home buyers to save for the purchase of a qualifying home. It combines the principal features of the RRSP and the TFSA: contributions are deductible from income, investment income accumulates tax-free, and qualifying withdrawals for the purchase of a first home are not taxable.

ELIGIBILITY TO OPEN AN FHSA

• Resident of Canada.

• At least 18 years of age (or the age of majority in the province or territory of residence, if higher) and not older than 71 on December 31 of the year the account is opened.

• First-time home buyer at the time of opening: the individual did not, at any time in the part of the calendar year before the account is opened or in the preceding four calendar years, live in a qualifying home as a principal place of residence that the individual owned or jointly owned, nor, in the current calendar year before opening, in a home owned by the individual's current spouse or common-law partner.

• An individual may hold more than one FHSA, but the limits apply in aggregate.

PARTICIPATION ROOM AND LIMITS

• Annual FHSA limit: $8,000 per calendar year.

• Lifetime FHSA limit: $40,000.

• Participation room begins to accrue only in the year the first FHSA is opened; no room is generated for years before opening.

• Unused participation room of up to $8,000 may be carried forward to the following year, so that the maximum contribution in any one year is $16,000.

• Unlike the RRSP, contributions made in the first 60 days of a year are applied to that year, not the preceding year.

• Withdrawals, including qualifying withdrawals, do not restore participation room.

DEDUCTION OF CONTRIBUTIONS

• Contributions are deductible on line 20805 of the T1 return in the year made, and are reported on Schedule 15 (FHSA Contributions, Transfers and Activities).

• A deduction need not be claimed in the year of contribution; undeducted amounts may be carried forward indefinitely, including beyond the closure of the account.

• Transfers from an RRSP to an FHSA are permitted on a tax-free basis by direct transfer (Form RC720). Transferred amounts consume FHSA participation room, are not deductible, and do not restore RRSP deduction room.

QUALIFYING WITHDRAWALS

A qualifying withdrawal is not included in income. The conditions are:

• The holder is a resident of Canada throughout the period from the withdrawal until the home is acquired or built.

• The holder is a first-time home buyer at the time of withdrawal.

• The holder has a written agreement to buy or build a qualifying home located in Canada before October 1 of the year following the withdrawal.

• The holder intends to occupy the home as a principal place of residence within one year after buying or building it.

• The holder has not acquired the home more than 30 days before the withdrawal.

• The request is made to the issuer using Form RC725 Request to Make a Qualifying Withdrawal from your FHSAs.

Qualifying withdrawals from an FHSA may be combined with a withdrawal under the RRSP Home Buyers' Plan for the same qualifying home.

NON-QUALIFYING WITHDRAWALS

Any withdrawal that does not satisfy the qualifying conditions is included in income, reported on a T4FHSA slip, and subject to withholding tax at source at the same rates that apply to RRSP withdrawals.

MAXIMUM PARTICIPATION PERIOD AND CLOSURE

An FHSA must be closed by December 31 of the earliest of the following years:

• The year in which the fifteenth anniversary of opening the first FHSA occurs.

• The year in which the holder turns 71.

• The year following the year of the first qualifying withdrawal.

Funds that have not been used to purchase a qualifying home may be transferred on a tax-free basis to an RRSP or RRIF without consuming or requiring RRSP deduction room, or may be withdrawn as taxable income.

EXCESS CONTRIBUTIONS

• An excess FHSA amount is subject to a tax of 1% per month on the highest excess in each month.

• Form RC727 Individual Tax Return for FHSA must be filed by June 30 of the following year where the tax applies.

• The excess may be eliminated by a designated withdrawal or a designated transfer to an RRSP.

ADDITIONAL RULES

• The income attribution rules do not apply to funds given to a spouse or common-law partner for contribution to the recipient's own FHSA; however, the deduction is available only to the holder.

• Interest on money borrowed to contribute is not deductible.

• Qualified, non-qualified, and prohibited investment rules mirror those of the TFSA and RRSP.

• On breakdown of a marriage or common-law partnership, property may be transferred directly to the former spouse's FHSA, RRSP, or RRIF.

• Death of the holder: a surviving spouse or common-law partner may be designated as successor holder, in which case the FHSA continues in the survivor's name (subject to eligibility) or may be transferred to the survivor's RRSP or RRIF; otherwise, the fair market value is paid to the beneficiary or estate and is taxable to the recipient.

• Emigration: the holder may maintain the FHSA after becoming non-resident, but no qualifying withdrawal may be made while non-resident.

COMPARISON WITH THE HOME BUYERS' PLAN

• FHSA: contributions deductible; qualifying withdrawals are never repaid; lifetime limit $40,000.

• HBP: withdrawal of up to $60,000 from an RRSP; amounts must be repaid to the RRSP over 15 years, failing which they are included in income.

• Both programmes may be used for the same purchase, subject to the eligibility conditions of each.