3STRATEGIE TOGETTHE MOSTFROM THENEW FHSA
Are you interested in learning more about the TaxFree First Home Savings Account (FHSA) and how to get the most out of it? As tax season is underway, it’s a great time to highlight some strategies that could benefit you when it comes to the FHSA.
To start, it might be worth contributing to an FHSA even if you are unsure about buying a house in the near future. The FHSA is intended for first-time homebuyers who are at least 18 years of age and residents of Canada. To qualify, you cannot have owned a principal residence at any time during the year you open the account or in the four preceding years. The lifetime contribution limit for an FHSA is $40,000, with an annual contribution limit of $8,000. If you don’t use the full amount in one year, the contribution room rolls over. Similar to an RRSP, the money you contribute to an FHSA is tax-deductible. When you withdraw the money, it’s tax-free if you buy or build a house. However, if you decide to build or buy a house, you can roll the money over to your RRSP, which won’t impact your RRSP contribution room.
Strategy two involves gifting money to your spouse or adult children so they can contribute to their own FHSA. The FHSA is an individual account, so you can’t have a joint FHSA or make spousal contributions. However, if you want to help your adult children save for a home, you can gift them money to contribute to
their own FHSA. Additionally, if a couple is trying to save for a home, both partners can open their own FHSA. They can withdraw money from both accounts to purchase a home if they own it jointly. Furthermore, if one partner earns more income, they can gift money to their partner, who can contribute to their FHSA. The spousal attribution rules around gifting and investing between spouses don’t apply to the FHSA, so take full advantage of this opportunity.
Another tip to get the most out of the FHSA is to defer the tax deduction. If you are in the early stages of your career and your income is lower, the tax deduction from an FHSA contribution might not result in significant tax savings. You can add the money this year and carry forward the deduction to use in a future year when
your income is higher, resulting in greater tax savings. Lastly, it’s essential to invest appropriately in an FHSA. Although it can hold all the same investments as an RRSP or a TFSA, investing in a house that you intend to buy in a few years requires a different approach than saving for retirement. Ensure your portfolio is tailored to your goal and time frame. Your financial professionals can review your plan and help you get the most out of Canada’s new tax-free first home savings account.
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The comments and opinions expressed in this article are solely the work of Clinton Orr, not an official publication of CG Corp., and may differ from the opinion of CG Corp’s. Research Department. Accordingly, they should not be considered as representative of CG Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this article, is for general information only, does not constitute legal or tax advice, and the author Clinton Orr does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or CG Corp. assume any liability.
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