What Is the New Canada FHSA Account?

What Is the New Canada FHSA Account and What does it Means for First Time Buyers in Montreal?

New opportunities are emerging for first-time homebuyers in Montreal as they embark on their journey into the real estate market. One of these is the Canada First Home Savings Account (FHSA), a novel financial tool that combines elements of tax-free savings accounts and registered retirement savings plans (RRSPs). This specialized registered account allows you to set aside a yearly sum of up to $8,000, with a maximum limit of $40,000.

Let’s dive deeper into the details of the Canada FHSA and explore how it might bring you one step closer to purchasing your first home.

Who Is the Canada FHSA for?

young couple receiving keys to first home - Canada FHSA
Home Affordability Just Got Easier For Canadians

The Federal Government introduced FHSAs as a savings instrument hoping to motivate Canadians to save more money for acquiring their first home and to help prepare them financially.

You are eligible to open an FHSA if you meet the following qualifying conditions:

You must be 18 years of age or older
Not be more than 71 years of age on December 31 of the year you open the account
You must be a resident of Canada
You must be a first-time homebuyer

To qualify as a first-time homebuyer you must not have owned real property (e.g. condo, duplex, single-family unit) solely or jointly with a spouse or common-law partner within the last four years.

What Exactly Does the Canada FHSA Do?

You can contribute up to $8,000 a year to your FHSA and there is a lifetime limit of $40,000. These contributions are tax-deductible, one of the most notable advantages. From the time you open a FHSA, you have 15 years to spend the money on a down payment, deposit, or closing costs toward a home.

The money within your FHSA can be invested in a range of financial products such as mutual funds, stocks, bonds, and guaranteed investment certificates. You won’t have to pay taxes on the returns generated by these investments.

Upon purchasing your first home, you can request a qualifying withdrawal from your FHSA issuer to confirm your eligibility. Assuming all requirements are met, you’ll receive your savings, and you can use the entire amount tax-free toward your down payment, deposit, or closing costs.

What are the Tax Benefits of a Canada FHSA?

hip student doing taxes - Canada FHSA
Make sure to speak with your CPA

Again, every contribution you put into your FHSA reduces your taxable income for the year. You won’t be taxed on the money within your FHSA, including any gains. If you have not started saving for a home yet, opening a FHSA is a great place to begin.

Transfers Between FHSAs and Other Accounts

FHSAs and RRSPs: You are able to transfer money from your RRSP (registered retirement savings plan) into your FHSA, provided you have sufficient contribution room available within your FHSA. However, you won’t be able to deduct the transferred amount on your tax return within the FHSA plan. Additionally, transfers from an RRSP to an FHSA will not restore your RRSP contribution room.

TFSAs and FHSAs: You also have the option to take funds out of your TFSA (tax-free savings account) without incurring any taxes and then contribute them to your FHSA. This qualifies for a tax deduction, as long as there is sufficient contribution room available in your FHSA. Withdrawals from your TFSA in the current year regenerate TFSA contribution room the following January 1st.

When and Where Is the Canada FHSA Available?

Royal bank of canada building - Canada FHSA
Royal bank of Canada

You can open an FHSA starting April 1st, 2023. They are available through an FHSA issuer such as a bank, credit union, or a trust or insurance company. Your issuer will guide you on the various FHSA options available and the types of investments that they can hold. Let’s take a look at some of the institutions offering FHSAs below.

Questrade

At Questrade, customers can invest in the FHSA through a Questrade self-directed account or through Questwealth Portfolios, its robo-advisor platform. There is no charge for opening either of these accounts and there is no minimum deposit required. However, in order to open the account, customers must already have invested a minimum of $250 with Questrade or $1,000 with Questwealth Portfolios.

Wealthsimple

At Wealthsimple, you can have your portfolio managed by an advisor. Simply tell them your goals and timeline for your FHSA, and in-house advisors will invest your money in a wide range of assets across the market. You can also open a self-directed investing account that gives you total control over where your money is invested. Buy and sell over 9,000 stocks and ETFs commission-free and automate your investments.

National Bank of Canada

National Bank of Canada offers FHSAs with no minimum deposit or minimum balance required. For existing customers, the account can be opened online. However, new customers and individuals seeking financial guidance are encouraged to schedule an appointment with a bank advisor for assistance.

RBC

RBC provides FHSAs through RBC Direct Investing, which is their online brokerage, and RBC InvestEase, their robo-advisor platform. Additionally, you can open an account through RBC’s online banking platform, their mobile app, or by consulting with a financial advisor at a physical branch. There is no minimum balance required with RBC. Customers can currently invest in stocks, options, bonds, mutual funds, ETFs and GICs.

TD

FHSA has been available at TD since August 2023. Between August 16th and October 31st, 2023, if you invest $3,000 or more in a qualified account and maintain the investment until January 31st, 2024, you will receive $100.

EQ Bank

To open an FHSA with EQ Bank, you must first open an EQ Savings Plus Account.
Individuals who open FHSA accounts will earn 3% interest on the funds held within their FHSA Savings Account. There is also the option to invest in an FHSA GIC (not available in Quebec).

Scotiabank

In August, Scotiabank introduced its FHSA, but with a somewhat restricted range of choices. Currently, customers are limited to keeping their savings as cash within the Scotiabank Savings Accelerator, which is the bank’s highest-interest savings account offering. This cash balance in the FHSA accrues an annual interest rate of 0.75%. For a limited period, Scotiabank is offering a bonus interest rate of 4.25%, making it a total of 5% interest, for new deposits made between August 14th, 2023, and January 31st, 2024.

Fidelity

Investors can open a FHSA online through Fidelity. The account can hold mutual funds and ETFs.

Final Word

Canada’s FHSA is a great tool to help homebuyers in Montreal purchase their first home. Any growth from your investments is tax-free and contributions you make to your FHSA reduce your taxable income. FHSA funds can be invested in various financial products, such as mutual funds, stocks, bonds, and guaranteed investment certificates (GICs). This flexibility enables individuals to choose investment strategies that align with their financial goals and risk tolerance, so the account is accessible to people of all income levels. It’s important to note that the specific benefits and eligibility criteria may vary depending on the financial institution offering the FHSA, so potential homebuyers in Montreal should research and compare options to find the FHSA that best suits their needs and financial situation.

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