Tax Free First Home Savings Account
To compliment other home savings strategies, the Canadian Government has approved a new Registered Savings Account for First Time Homebuyers called, First Home Savings Account (FHSA).
The limit for everyone this year is $8,000 and a max contribution of $40,000 is allowed into this account over time (meaning 5 years of maxed contributions of $8,000). You can carry forward only one year of unused contributions, so start the account early.
Contributions made are tax-deductible (you save income tax at tax time) and withdrawals when making your first home purchase are tax free....plus you don't have to pay back the contributions. (This is unlike RRSP first time homebuyer withdrawals were you need to repay the amount taken out over 15 years.)
Strategies for maximization of this new account according to Family Tree Financial:
1. The High Income Earner: If you have maxed out your RRSP contribution room each year, and do not own real-estate, using the First Home Savings Account (FHSA) will create further income deduction room. If you don't use the account for your first home within the 15 years of opening the account, you can transfer the balance to your RRSP, even if no room exists.
2. The Saving-Saavy Investor: Using both the RRSP and the FHSA to save your down payment, you are maximizing tax savings possibilities. Check with your employer first to see if they have a RRSP matching employee benefit to expedite your savings!
3. The Double Dipper: As a pair who is saving for their down payment, each owner can save using their own FHSA and/or RRSP. This duplicates tax saving potential.
Here is an example of what maximizing both programs looks like in action:
(Save a total of $1,250 per month if you have nothing saved towards the goal today.)
$35,0000.00: First Time Home-Buyer withdrawal
$46,415.30: FHSA (total contributed to max over 5 Years multiplied by a 5% investment return rate)
$21,000.00: Tax Savings (with an income of $50,000 at marginal tax rate of 28% over 5 years)
$102,415.30 Down Payment
(For the next 15 years, the new home owner would need to make a contribution to their RRSP of $194.41/month to repay the RRSP withdrawal made. No repayment for the FHSA.)