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By: Louai Bibi, Advisor Associate

We are pleased to announce that we will be able to offer our clients the new First Home Savings Accounts (FHSA) at Ecivda Financial Planning Boutique as of June 12, 2023!  If you are in the market for your first home, or if you know someone that is in the market for their first home, this is an exciting new opportunity!

Outlined Below:  What is the FHSA & how does it work, who is eligible to open one, the benefits & planning opportunities around this new account, what happens if you no longer wish to buy a home, and how to get in touch if you’d like to review considering this account for yourself.

What is the FHSA and how does it work?

This exciting new account came about as part of the 2023 federal budget to help Canadians build more tax-free savings to fund their home purchase goals. The FHSA characteristics are a blend of the TFSA, RRSP, and RESP rules; so it is easy to get confused. I have compared the FHSA to the RRSP & TFSA in a past blog, which I encourage visiting if you’d like to look at specific differences and similarities of each account.

The basic premise is:

• You can contribute $8,000 per year, up to a lifetime limit of $40,000. Contributions are tax-deductible!
• Since the FHSA came into effect on April 1^st of 2023, you can only deduct contributions made between April 1^st and December 31^st of 2023 for the 2023 tax year. Contributing in the first 60 days of the following year does not count towards your 2023 taxes like RRSP contributions do.
• You can carry forward the tax deduction indefinitely to a year where your taxable income is higher.
• These contribution limits are separate from those of the TFSA and RRSP.
• You can hold a variety of investments in the FHSA, or you can simply choose to keep the funds in savings plan within the account.
• If you are withdrawing from this account to purchase a home, you can do so tax-free. Otherwise, you would pay taxes on the withdrawal at your respective tax rate.
• You can carry forward unused contribution room to future years. So, if you open a FHSA in 2023 and don’t fund it, in 2024 you can contribute $16,000. You can only carry forward room if you have already opened your FHSA.

Who is eligible to open a FHSA?

Most of us read ‘first home savings account’ and immediately assume that this account won’t be relevant to them if they have owed a home in the past. This is not necessarily the case! The definition of first-time home buyer is unique here and I’ll address this further below.

You are eligible to open a FHSA if you satisfy the following conditions:

• Canadian resident for tax purposes.
• Between the age of 18 and 71 years old.
• Have not owned a home in the current year or last four years prior to opening a FHSA.
• Have not lived with a spouse or common-law partner who owned a home in the current year or last four years prior to opening a FHSA.

Disclaimer: this account may not be appropriate for US taxpayers. Please consult with your advisory team to ensure the FHSA is an appropriate fit if this applies to you.

What are the benefits and planning opportunities of the FHSA?

I’ve addressed the features and eligibility of the FHSA and you may be wondering how this account may benefit you. Here are a few benefits that you may find compelling:

• You get to deduct your contributions against your taxable income. If you had $50,000 in taxable income in 2023 and contributed $8,000, you will be taxed as though you made $42,000 instead.
• As great as the tax deduction can be now, you may wish you took advantage of it when your income was higher. You can absolutely do so!
• While there is a lifetime contribution limit, there is no limit on how much you can withdraw and it is tax-free if it is for a qualifying home purchase! Your account could have doubled in value and you won’t owe a cent in taxes.
• Many of us may be familiar with the Home Buyer’s Plan feature of the RRSP (RRSP HBP) that let’s us borrow up to $35,000 from our RRSPs tax-free as a loan. If you have existing savings in a RRSP that you may want to use for your home purchase but also want to save regularly in a FHSA, why not take advantage of both programs?
• Better yet, if you are buying a home with your spouse or common-law partner, how great would it be if you each leveraged the RRSP HBP and the FHSA? That is a lot of tax-free money to put towards your home!
• There are more advanced tax applications of the FHSA that can be assessed on a case-by-case basis, regardless of what life stage you are in. I’ll save these for another blog, but there are some unique and beneficial ways to merge your first-home savings goals with your ongoing tax planning.

What if I change my mind about buying a home?

if buying a home is no longer a part of your current financial plan, this is no problem at all. You can transfer the funds in your FHSA into your RRSP without needing to withdraw and pay taxes.

Beyond this, you need to close your FHSA by no later of December 31 of the year in which the earliest of the following events occur:

• 15^th anniversary of opening your first FHSA.
• You turn 71 years old.
• The year following your first qualifying withdrawal from your FHSA.

How do I get in touch if I’d like to learn more?

The FHSA is an exciting opportunity for eligible Canadians and we are exciting to be able to offer it to our clients. We would love to review the merits of implementing the FHSA into your financial plan but believe it is also important to consider the existing options available to first-time home buyers as well how each account fits our individual circumstances.

If you are saving for your home purchase goal, please get in touch with any member of our advisory team to coordinate opening/funding your FHSA. We will be happy to help you tailor your FHSA contributions & investment portfolio to your goals!

You are welcome to book yourself into any of our calendars here.

By: Louai Bibi, Advisor Associate

So many Canadians are saving for their first home. Some of us might be on the brink of making that lifechanging purchase, others may still have some time ahead of them. Regardless of your timeline, we often ask ourselves questions like:

• Should I invest this money?
• What account suits my personal circumstance the best?
• What are the pros & cons of each account?

I’ll preface by saying that if you are considering accessing your money within a 48-month window, we advise against investing in the market. While markets generally trend upwards most of the time (you might not feel like it if you started investing in 2022), we don’t have a crystal ball and we’d rather play it safe & ensure your hard-earned savings stay intact if markets happen to experience short-term volatility.

In terms of what accounts are available for first-time homebuyers, you have four great options:

• A generic savings account
• A tax-free savings account (TFSA)
• A registered retirement savings account (RRSP)
• A first home savings account (FHSA)

Your savings account is a great place to store your money when we’re on the brink of purchasing your home (think 48-month timeline, as we discussed above). The TFSA, RRSP, & FHSA all generally entail investing your money in the market. So how do you differentiate which account makes the most sense for you?

Well, let’s start with understanding what benefit each account offers a first-time home buyer:

The TFSA

The TFSA offers tax-free growth when you invest, so if your money grows from $50,000 to $100,000, you get to withdraw $100,000 tax-free, with no penalties and/or restrictions. This is pretty great in my eyes, as the last thing a first-time home buyer should be concerned with is taxes when they are going through an exciting life change. If you later decide purchasing a home no longer makes sense for you or that you need to push out your timeframe, you can keep trucking along & growing your wealth tax-free.

The RRSP

While primarily, used for retirement savings, first-time home buyer’s have an advantage when saving within this account. It’s widely known as the home buyer’s plan (HBP), which allows you to withdraw up to $35,000 from your RRSP to put towards the purchase of your first home. Generally, when you withdraw from a RRSP, that amount is taxed as income. When a RRSP withdrawal is for your first home, you can withdraw this money tax-free. The catch is that after a couple years, you need to begin paying back 1/15th of the amount you withdrew from your RRSP over the next 15 years. By participating in the HBP, you’ve essentially loaned yourself those funds from your retirement savings & they slowly need to go back to your RRSP to later fund retirement. This isn’t a ground-breaking implication, but you earlier heard me mention that we don’t have a crystal ball. We don’t know what the future holds & many homeowners are feeling the stress of higher interest rates impact their monthly payments. While a 1/15th of up to $35,000 per year may not feel suffocating to you while reading this, it certainly can add stress to the lives of others who are adjusting to the associated costs of home ownership.

The FHSA

This just launched in 2023 & the majority of financial institutions can’t even open these quite yet, as they are still building out the infrastructure required to be able to handle contributions, withdrawals & CRA reporting. This account shares a few characteristics that the TFSA & RRSP offer. You can contribute up to $8,000 per year (to a lifetime maximum of $40,000) and use these funds towards your home purchase tax-free. By the time 15 years has passed or you turn 71 years old (whichever comes first), you have the option of withdrawing these funds as cash, at which point it becomes taxable to you, or you can transfer the balance to your RRSP on a tax-deferred basis. While you are waiting for the FHSA accounts to be accessible at all financial institutions, you can save in a TFSA and/or RRSP & later transfer this account to the FHSA, with no tax implications.  Your contributions are tax-deductible just like your RRSP, which makes this unique from the TFSA.

Here are my favourite parts about this account:

• Remember how I mentioned needing to repay 1/15th of your RRSP HBP withdrawal every year? This concept does not exist when you withdraw from the FHSA for your first home. There is no repayment schedule & I think that will put a lot of minds at ease, especially when we go through times where money is tight.
• When our annual RRSP contribution room is calculated, its often based on a percentage of our earned income. The FHSA annual contribution limit is not linked to our earned income, but rather a set dollar amount prescribed by the government, which is currently $8,000/year. For those who may be newer to Canada and/or just starting their career & haven’t hit their salary potential quite yet, this may be a powerful tool to save!

When you should connect with us for help

You may want help establishing a savings target or building a roadmap to get from goal to reality. For others, our financial circumstances can be complex & may warrant a deeper conversation, like if you are a US citizen, or if you are just trying to understand where this piece of the puzzle fits in your overall wealth plan. Whether you are new a new or existing client, our door is always open to chat. Whether it is me, Mike, Shawn, or Corey, we’ll be happy to help you make an informed decision. Click HERE to book with us.

Conclusion

At this point, we have a baseline understanding of how each account works for first-time home buyers to make an informed decision. I’ve shared a table below that compares the features of the accounts that we have covered in this blog (click HERE for image source). Each of our scenarios are unique, so we do have to assess the merits of using each account on a case-by-case basis. My objective for this blog is to create general understanding of each account, as well as how they may or may not work in your favor. Buying your first home is a significant achievement & you deserve to have the right professionals by your side. Whether you need our advice, or the advice of a mortgage/tax/legal professional, we’ll put you in touch with the right person.

How does the FHSA compare to the RRSP Home Buyers’ Plan and a TFSA?