A First Home Savings Account (FHSA) is a Canadian registered account designed to help individuals save for their first home. It combines features of both an RRSP and a TFSA, offering tax deductions on contributions and tax-free withdrawals for a qualifying home purchase.
How It Works
Contributions to an FHSA are tax-deductible, lowering taxable income like an RRSP. Investment income inside the account grows tax-free. When the money is withdrawn to buy a first home, it is not taxed, similar to a TFSA.
Limits
The annual contribution limit is $8,000, with a lifetime maximum of $40,000. Unused contribution room can be carried forward, and accounts can remain open for up to 15 years.
Benefits
- Tax deduction: Contributions reduce taxable income like an RRSP.
- Tax-free growth and withdrawals: Earnings and qualifying withdrawals are tax-free, like a TFSA.
- Helps first-time buyers: Provides a powerful tool to save for a down payment.
Final Thoughts
The FHSA is a valuable addition to Canada’s savings plans, offering a unique blend of RRSP and TFSA benefits. For first-time homebuyers, it is one of the most tax-efficient ways to save for a property.