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Tips and tactics for an FHSA

Published on: July 17th, 2023

FHSA concept. Woman holding a box in her new home.

The First Home Savings Account (FHSA) is being widely praised as a tax-smart way for first-time home buyers to help fund a down payment. Account holders can contribute up to $8,000 a year, to a lifetime limit of $40,000. Contributions are tax-deductible, reducing taxable income by the contribution amount. Investments grow tax-free, and withdrawals to buy a qualifying home are tax-free.

Helpful ways to use an FHSA

Several strategies are emerging to make the most of the recently introduced FHSA – here are some helpful tips and tactics.

Team up with a TFSA.

A prospective homeowner can withdraw funds from their Tax-Free Savings Account (TFSA) and contribute the amount to an FHSA. This maneuver gives them a tax deduction for the FHSA contribution. Going a step further, they could even use the resulting tax refund to help replenish their TFSA when they have contribution room available.

Help your child using the FHSA.

When helping a child or grandchild make a down payment, it’s common to gift the funds when purchasing the home. But those dollars impact more if you give funds earlier, which the child deposits into their FHSA. Now the child benefits from tax deductions, tax-free growth, and tax-free withdrawals.

Factor in the timing.

An FHSA can be opened at age 18 or the age of majority in your province. But it can only remain open for a maximum of 15 years (or until the end of the year the account holder turns 71). So you need to consider when you imagine yourself buying a home. One person might choose to open an FHSA at 18, while another may prefer to wait until they’re in their early 20s. Timing also matters when it comes to choosing investments. A 25-year-old aiming to buy a home in about ten years might favour equities for greater long-term growth potential. But another individual of the same age may focus on less risky fixed-income investments if they hope to buy in five years. Keep in mind that all account holders, including conservative investors, benefit from tax savings provided by the tax deduction on contributions.

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