I’ll get straight to the action point here before going into the details. All Canadian adults (except seniors) who expect to be first-time home buyers within the next 15 years should open a First Home Savings Account by December 31 if they have not done so already.
If you or your spouse are already homeowners then this account is not for you. But perhaps you have adult children or adult grandchildren that could benefit from this new account but may not be aware of the details and/or the benefits of opening one by the end of this year.
Opening an account and depositing even $100 this year will allow any unused 2024 contribution room to be carried forward to future years and any amount contributed up to the $8,000 maximum is tax deductible for the 2024 tax year. The income tax savings amount to “free money” if a qualifying first home is ultimately purchased.
Those who have not owned a home at any time in 2024 or in the preceding four calendar years also qualify as “first-time” home buyers for this purpose. Unfortunately, if your spouse does not qualify then neither do you.
The fundamental attraction and benefit of the new FHSA is that it will typically generate income tax savings of about $1,600 to $3,200 annually if the account is maximized at $8,000 per year for five years. Alternatively, the account can be funded over a longer period of up to 15 years. Either way, that’s a total income tax saving of about $8,000 to $16,000, generated by the maximum $40,000 in contributions. In addition, the growth of the money invested in the account is not taxed. These amounts are double in the case of couples, since each partner can have their own FHSA. None of the income tax savings are repayable if a qualifying first home purchase is made within 15 years of first opening the account.
This new account can also be combined with the RRSP Home Buyer’s Plan on the same qualifying home purchase.
There are various rules about exactly who qualifies to open an account and how to make a qualifying home purchase. Seniors over the age of 72 are not eligible to open an FHSA, and any account opened must be closed by the end of the year that the account holder turns 71. Full details are available on the Canada Revenue web site.
Those with lower taxable incomes or who expect to be in a higher bracket in future years should check with their tax preparer. It may be significantly more advantageous to carry forward your contributions to deduct in future years at higher income levels. Contributions can even be carried forward beyond the year that a qualifying home purchase is made if that is advantageous.
The bottom line is that this new FHSA provides substantial income tax savings to potential first-time home buyers. Opening an account and contributing even $100 by December 31 will allow the unused contribution to be carried forward. No contribution room is generated to be carried forward if an account is not opened. Those for whom this is applicable should talk to their financial institution very soon about opening an account.
For potential first-time home buyers there is NOTHING to lose by opening a First Home Savings Account by December 31 and you can contribute just a few dollars or up to $8000. If you can only contribute a few dollars you will at least create unused contribution room to carry forward.
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Shawn Allen
InvestorsFriend Inc.