Here in Canada, we love our four-letter acronyms for investment vehicles. You’ve got the RRSP (aka the Registered Retirement Savings Plan), TFSA (Tax Free Savings Account) and many, many more. And now, awaiting royal assent and set to be introduced in 2023, we’ll have one more acronym to add to the list: the FHSA. So what is an FHSA, and what the heck is it used for?
The FHSA, Explained
Well, first off, FHSA stands for “First Home Savings Account,” and when it comes to life, it’s going to be the new coolest kid in school when it comes to saving for your first home.
See, here’s the thing: with an RRSP, you don’t pay tax on your money upfront, but you do pay it when you withdraw the money. With a TFSA, you contribute with after-tax dollars, but you don’t pay tax when you take the money out.
With the FHSA though, you get the best of both worlds: you don’t pay tax on the money you use to contribute, and you also don’t pay tax when you withdraw it later on.
No tax, ever. Give that a moment to sink in. Go on… I’ll wait.
Of course, there are some conditions to this. The FHSA allows you to save up to $8,000 a year, to a lifetime max of $40,000 per person, which you then need to use within 15 years of opening the account.
Heads-up: if you withdraw the money, but don’t use it to purchase a home, you pay tax on it at the point that you take it out. That makes it more like an RRSP… which is still a pretty sweet deal.
Who qualifies for the FHSA?
Not just anybody can open a First Home Savings Account. You need to be a resident of Canada, be at least 18 years old, and you can’t have lived in a home you own in the year you open the account, or any of the four years prior to that.
If you don’t check all these boxes, you unfortunately won’t be allowed to open an FHSA. Bummer.
Wrapping it Up
Where was this when my wife and I were saving for our first home? We had to use the crummy Home Buyers Plan to make our first purchase, which is a way crappier tool for buying your first home that I’ll write about another time.
Bottom line, if it receives approval to launch, the FHSA will be the single most powerful tool ever created to help people buy their first home in Canada. Learn it, love it, leverage it.
No tax on the way in, no tax on the way out… it brings a tear to my eye.
