For many Canadians, buying a home will likely be the most expensive purchase they ever make.
Depending on the price of the home you’re hoping to buy, you could be looking at a down payment of 5%, 10% or even 20% or more.
But wait. Don’t forget to factor in other costs, including land transfer taxes, lawyer fees, home insurance, an inspection and more. Depending on where you live, and the type of property you’re eyeing, those costs can add up quickly.
While following a budget can be a helpful place to start your savings journey, it’s equally important to think about how you’re saving, especially if you’re aiming to eventually purchase a home.
If you’re thinking about buying a home, you may want to start by asking yourself if you are making the most of the registered accounts available to you.
There are a number of registered savings plans available to Canadians, but two common accounts are: the Tax-Free Savings Account (TFSA), and the Registered Retirement Savings Plan (RRSP). And new for 2023, the First Home Savings Account (FHSA).
Generally, these registered savings plans let your money grow tax-free or tax-deferred, and within these plans you may have the ability to hold investments such as guaranteed investment certificates (GICs) and Mutual Funds.
Customers are now able to open an FHSA at TD. In preparation, we wanted to help you get a better understanding of how the FHSA works, and how it could help you save for your first home.
An FHSA combines some of the features of an RRSP and a TFSA. Like an RRSP, contributions are generally tax-deductible. Similar to TFSA withdrawals, when a qualifying withdrawal is made from an FHSA to purchase a qualifying home, the amount withdrawn, including any income or gain, is not taxable.
Within your FHSA, you can hold many of the same types of investments as you would in a TFSA or RRSP, including cash, Mutual Funds, and GICs.
Like an RRSP, contributions will generally be tax-deductible, meaning they could potentially reduce the amount of tax you pay when it’s time to file your income taxes. Similar to TFSA withdrawals, when a qualifying withdrawal is made from your FHSA to purchase a qualifying home, the amount withdrawn, including any income or gain, is not-taxable.[1]
To be eligible to open a FHSA, you will need to be a Canadian resident, 18 years or older*, and a first-time home buyer.[2] In the context of opening an FHSA, an individual is considered to be a first-time home buyer if at any time in the part of the calendar year before the account is opened or at any time in the preceding four years they or their spouse or common-law partner did not live in and own or jointly own a qualifying home.
Just like a TFSA, an FHSA has an annual contribution limit. For the FHSA, that annual contribution limit is $8,000. You can only carry forward a maximum of $8,000 in unused contribution room to the following year for a maximum yearly contribution of $16,000.[3] [4]
For instance you can contribute $5,000 to your FHSA in Year 1 and then $11,000 ($8,000 yearly contribution limit + the remaining $3,000 from the year before) in Year 2.
Over the lifetime of the FHSA, you can contribute up to a total of $40,000.
Your FHSA can stay open a maximum of 15 years**, with a few conditions. The account can stay open until the end of the year you turn 71, or the end of the year following the year in which you make a qualifying withdrawal from the account for your first home purchase, whichever comes first.
If you have questions about how to save for your first home or anything else, consider speaking to a TD Personal Banker. Find one near you.
And when you’re ready to start looking for your first home, consider speaking to a TD Mortgage Specialist to learn about mortgages at TD so you can be prepared for the next stage of your journey.
* In certain provinces and territories, the legal age at which an individual can enter into a contract including opening a FHSA is 19. You must be at the age of majority in your province of residence and provide a valid Social Insurance Number (SIN).
** Based on the date on which the first FHSA is opened.
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The information contained herein is for information purposes only. The information has been drawn from sources believed to be reliable.
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[1]Subject to any restrictions on the investments chosen and eligibility / conditions.
[2]In certain provinces and territories, the legal age at which an individual can enter into a contract including opening a FHSA is 19. You must be at the age of majority in your province of residence and provide a valid Social Insurance Number (SIN).
[3]For instance you can contribute $5,000 to your FHSA in Year 1 and then $11,000 ($8,000 yearly contribution limit + the remaining $3,000 from the year before) in Year 2.
[4]You can carry forward your unused FHSA participation room at the end of the year, up to a maximum of $8,000, to use in the following year. This amount is referred to as your FHSA carryforward. Any FHSA carryforward will be included in the calculation of your FHSA participation room for the year.