How does the FHSA work?

What is the FHSA?

The First Home Savings Account is a new registered plan designed specifically for Canadians who are saving up for their first home. This account is similar to a Registered Retirement Savings Plan (RRSP) in that it allows you to contribute pre-tax dollars into your account, but instead of being designed for retirement savings, it is designed to help you save for a down payment on your first home.

How does it work?

The FHSA works by allowing you to contribute up to $8,000 per year into your account, with a lifetime contribution limit of $40,000. Any money you contribute to your FHSA is tax-deductible, which means that you can reduce your taxable income by the amount you contribute to your account.

Once you are ready to buy your first home, you can withdraw money from your FHSA tax-free to put towards your down payment. The money you withdraw from your FHSA must be used towards the purchase of your first home, and you have 15 years from the date you open your account to use the funds.

What are the benefits of the FHSA?

The FHSA offers several benefits for Canadians who are saving up for their first home. Here are a few of the key benefits:

1. Tax benefits: By contributing to your FHSA, you can reduce your taxable income, which can help you save money on your taxes.

2. Flexibility: Unlike other savings accounts, the FHSA is specifically designed to help you save for your first home. This means that you can withdraw money from your account tax-free when you are ready to buy your home.

3. Savings potential: By contributing up to $8,000 per year, you can quickly build up your savings for a down payment on your first home.

4. There will be no withdrawal limit. Meaning if you contribute 40,000$ over the first 5 years and manage to invest that into something that grows into 80,000$, then you will be able to withdraw the full 80,000$ for the down payment of your home.

When will the FHSA account be available?

You should be able to open your FHSA with your financial institution by spring 2023.

In conclusion, if you are saving up for your first home, the FHSA may be a great financial tool for you. By contributing to your FHSA, you can take advantage of tax benefits and build up your savings for a down payment on your first home.