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Buying your first home in Ontario can feel like climbing a mountain. High real estate prices, inflation, and other economic challenges can make saving for a down payment a significant hurdle. But what if there was a way to boost your savings with tax advantages?
Since the First Time Home Buyer Incentive was cancelled in 2024, new homeowners have been looking for ways to save money towards a down payment. The First Home Savings Account (FHSA) is a helpful investment tool designed to help Ontarians achieve their homeownership goals. Here’s a look at the features, who is eligible, and how the FHSA works.
The First Home Savings Account (FHSA) is a registered savings plan specifically designed to help first-time homebuyers save for a down payment.
Unlike a Tax-Free Savings Account (TFSA), contributions to an FHSA are deductible from your taxable income, which means you'll pay less tax now. Even better, withdrawals are tax-free when used for the purchase of your first home.
While the TFSA allows for tax-free withdrawals, contributions are not tax-deductible. Conversely, the Registered Retirement Savings Plan (RRSP) provides tax-deductible contributions, but withdrawals are generally taxable. The FHSA combines the best of both worlds by offering tax-deductible contributions and tax-free withdrawals for first-time home purchases.
| FHSA Question | Details |
|---|---|
| Who qualifies for the FHSA? | Canadian residents 18+ who haven't owned a home in the current or previous 4 years |
| Tax-deductible contributions? | Yes |
| Tax-deductible withdrawals? | Yes |
| Max contribution limit | $8,000 per year until $40,000 max |
| Deadline to close the account? | The account must be closed by the earlier of the 15th anniversary of the account, the year the holder turns 71, or one year after the first qualifying withdrawal. |
The First Home Savings Account (FHSA) in Ontario provides several key features to help first-time homebuyers save for a down payment. Key features include contribution limits, tax deductibility, tax-free withdrawals, investment options, home purchase eligibility, flexibility, and carry-forward contributions. Here is a closer look at them:
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To be eligible for a First Home Savings Account (FHSA), you must meet certain criteria:
Here is an example of how the FHSA could help you save for your first home:
Let's say you contribute $6,000 annually for four years (a total of $24,000) directly from your paycheck, tax-free, into a First Home Savings Account (FHSA), and your investments earn a 7% annual return. At the end of four years, you'd have approximately $28,437 – your initial $24,000 plus $4,437 in returns. This entire amount is tax-free when used for a down payment on a home.
Imagine putting that same $6,000 each year into a regular savings account for those four years. With the same 7% return but factoring in a 22% average tax rate on investment gains, you'd end up with approximately $23,266 after taxes.
Contributions to First Home Savings Accounts (FHSAs) are generally tax-deductible in the year made or later, similar to Registered Retirement Savings Plans (RRSPs).
Yes, you can earn interest on a First Home Savings Account (FHSA). Some institutions offer competitive interest rates on the funds held within the account, similar to tax-free savings accounts.
Yes, you can withdraw money from a FHSA, but it must be a qualifying withdrawal to purchase or construct an eligible home. You must also meet specific conditions, which include being a first-time home buyer and a resident of Canada.
Spouses who are both first-time homebuyers can each open and contribute to their own FHSA, for a total of $80,000 in contributions. Joint spousal accounts are not allowed; however, you can gift money to your spouse for their FHSA.
Many financial institutions offer First Home Savings Accounts (FHSAs), so comparing fees and investment options is essential before choosing a provider. Consulting a financial advisor can help you find the best strategy for your situation.
Don’t forget, when purchasing a new home, it's crucial to compare home insurance quotes from different providers in Ontario to find the best coverage and rates for your individual circumstances.
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| Categories | Home |
|---|---|
| Tags | Buying and Selling Your Home |
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