Canada launches program for those planning to buy their first home
A new initiative from the government will help you save up to $40,000 CAD.
Beginning in 2023, the Tax-Free First Home Savings Account (FHSA), a new tax-free savings account for first home purchases, is being introduced.
It provides first-time homebuyers in Canada with a savings account that combines the tax benefits of a tax-free TFSA and a registered RRSP retirement savings plan. Those taking advantage of this program will be able to invest in an FHSA, take a tax deduction similar to an RRSP, and then withdraw the amount of savings for a down payment at the time of home purchase; if all program conditions are met, participants pay no taxes on either the funds invested or the interest accumulated at the bank.
At the moment, the conditions for participation are as follows:
- any Canadian resident over the age of 18 is eligible to open an account;
- participants must not have owned a home for 4 calendar years prior to enrolling in the program;
- account is opened and used once;
- the upper limit for the annual deposit is $8,000 CAD;
- the maximum amount allowed for investment is $40,000 CAD;
- it is possible to have more than one account, but the limits remain the same.
It is worth noting that funds for the purchase of housing must be used within 15 years, after which the account is closed. If circumstances are such that it was not possible to purchase real estate, all the money in the account can be transferred to the RRSP and PRIF pension programs. The transfer will not be taxed, but any future withdrawals will be subject to Canadian tax law.
Of course, it is still difficult to predict how much this federal government initiative will alleviate the Canadian housing crisis. Nevertheless, it is already safe to say that for those wishing to purchase their first home, the FHSA is an excellent tool for optimizing savings and may be the only win-win option in light of increasing real estate prices.