• What is First Home Savings Account (FHSA)?

A First Home Savings Account (FHSA) is a registered plan allowing you, as a prospective first-time home buyer, to save for your first home tax-free (up to certain limits). You will be able to open an FHSA starting April 1, 2023.

• Who can open an FHSA?

At the time of opening the account, if you fulfill all of the below requirements, then you are considered a qualifying individual:

• 18 years of age or older. Some provinces and territories set the legal age for entering into a contract (including opening an FHSA) at 19 years old.

• Resident of Canada.

• First-time home buyer.

To be eligible for opening an FHSA, you will be regarded as a first-time home buyer if, at any time in the calendar year before the account is opened or at any time in the preceding four calendar years, you haven't lived in a qualifying home (or a home that would qualify if situated in Canada) as your primary place of residence that either:

• You owned or jointly owned.

• Your spouse or common-law partner (at the time the account is opened) owned or jointly owned

• How much you can contribute or transfer?

The maximum amount you can contribute to your FHSAs or transfer from your RRSPs to your FHSAs without exceeding the allowable FHSA limit is your FHSA participation room for the year.

• In the year that you open your first FHSA your FHSA participation room is $8,000

• The lifetime FHSA limit is $40,000

Your remaining lifetime FHSA limit will decrease with every contribution you make to your FHSAs and every transfer you make from your RRSPs to your FHSAs. In the event that your contributions and transfers in a year surpass your FHSA participation room, you will end up with an excess FHSA amount.

At the end of the year, any unused FHSA participation room can be carried forward to the following year, up to a maximum of $8,000. This carryforward is known as your FHSA carryforward, and it will be considered in the calculation of your FHSA participation room for the next year.

Direct participation in your spouse's or common-law partner's FHSA is not allowed. The FHSA holder must be the only person to participate in their own FHSA and claim the contributions as a tax deduction on their income tax and benefit return.

• Withdrawals from your FHSAs

If you're withdrawing funds from your first home savings account (FHSA) for the purpose of purchasing your first home or for any other reason, the reason for the withdrawal will determine how the withdrawal is treated for income tax purposes. If a withdrawal is classified as any of the following, it doesn't have to be reported as income:

• A qualifying withdrawal.

• or, a designated amount (designated withdrawal).

• or, an amount otherwise included in your income.

When you move funds from your FHSA to another FHSA, a registered retirement saving plan (RRSP), or a registered retirement income fund (RRIF) directly, it is considered a transfer and not a withdrawal.

What is a Qualifying Withdrawal?

Provided you meet the qualifying withdrawal conditions, you can remove all funds from your FHSAs without tax implications, whether it's a single withdrawal or a series of withdrawals. A qualifying withdrawal refers to a withdrawal from your FHSA that meets all of the following criteria:

• You must fill out a prescribed form and give it to your FHSA issuer (An entity such as a bank, credit union, trust, or insurance company, that is authorized to open an FHSA or RRSP on your behalf).

• You must be a first-time home buyer.

• You must have a written agreement to buy or build a qualifying home with the acquisition or construction completion date of the qualifying home before October 1 of the year following the date of the withdrawal

• You must not have acquired the qualifying home more than 30 days before making the withdrawal.

• You must be a resident of Canada from the time that you make your first qualifying withdrawal from one of your FHSAs until the date of the acquisition of the qualifying home, or the date of your death.

• You must occupy or intend to occupy the qualifying home as your principal place of residence within one year after buying or building it

What is a Designated Withdrawal and Designated Transfer?

To rectify your excess FHSA amount, you can either withdraw the surplus funds from your FHSAs (referred to as a designated withdrawal) or transfer them to your RRSPs or RRIFs (known as a designated transfer) using a prescribed form that will be available at a later date. A designated amount cannot exceed your excess FHSA amount at the time of the designation.

• What happens if you over-contribute to your FHSA?

You will have an excess FHSA amount if the total of your contributions to your FHSAs and transfers from your registered retirement savings plans (RRSPs) to your FHSAs in a year are more than your FHSA participation room for that year. You may need to pay taxes if you contribute or transfer more to your first home savings accounts (FHSAs) than your FHSA participation room for the year allows.

A tax of 1% per month is imposed on the FHSA surplus amount that exceeds the limit. The monthly tax of 1% will persist until the excess amount is eliminated, which can be achieved through either your participation room in FHSA being renewed on January 1 of the subsequent year, or by withdrawing funds from your FHSA. The following options are available for reducing or eliminating an excess FHSA amount:

• Making a withdrawal of a designated amount from your FHSAs (designated withdrawal).

• Making a direct transfer of a designated amount from your FHSAs to your RRSPs or RRIFs (designated transfer).

• Making a taxable withdrawal from your FHSA

• Any amounts deemed to be included in income if the account loses its status as an FHSA.

Takeaway points:

- If you withdraw funds through a designated withdrawal, you are not obligated to report the amount withdrawn as income on your income tax and benefit return for that year.

- If you transfer funds through a designated transfer, the transferred amount does not need to be reported as income on your income tax and benefit return for the year. Moreover, the transfer will not affect your unused RRSP deduction room.

- If you withdraw funds subject to taxation, the withdrawn amount must be reported as income on your income tax and benefit return for the year in which you received it.

- It's crucial to bear in mind that the designated amount is restricted to the excess FHSA amount at the time of designation. Therefore, you cannot designate an amount if you do not have an excess FHSA amount.

More information

For more detailed information please visit the official CRA website.