Buying your first home in Ontario is exciting, but saving for a down payment can feel overwhelming. The First Home Savings Account (FHSA) is a new, tax-advantaged tool designed to help first-time buyers reach their goal faster.
What is the FHSA?
The FHSA is a registered savings account that combines the benefits of both an RRSP and a TFSA:- - Tax-deductible contributions reduce your taxable income.
- - Tax-free withdrawals when used for a qualifying first home, including any investment growth within the account.
Key Features of the FHSA
- - Annual contribution limit: $8,000
- - Lifetime contribution limit: $40,000
- - Contributions can be carried forward if you don’t use your full annual room
- - Funds must be used for a qualifying first home to be withdrawn tax-free
How It Works
- 1) Open an FHSA: Available at most banks and financial institutions in Ontario.
- 2) Make Contributions: Contribute up to $8,000 per year, carrying forward unused room as needed.
- 3) Receive Tax Benefits: Contributions reduce your taxable income.
- 4) Withdraw Tax-Free for Your Home: When you buy your first home, you can withdraw your savings and any investment growth without paying tax.
Combining with Other Programs
Ontario first-time buyers can also take advantage of other incentives alongside the FHSA:- - Home Buyers’ Plan (HBP): Withdraw up to $35,000 from your RRSP to use toward a home purchase.
- - First-Time Home Buyers’ Tax Credit (HBTC): A non-refundable tax credit to help with closing costs.
Why the FHSA is Valuable
- - Faster Savings: Tax deductions and tax-free growth accelerate your down payment savings.
- - Tax Efficiency: Reduces your taxable income while growing your funds for your first home.
- - Strategic Planning: Works well with other programs to maximize your buying power.