Getting a job, getting married, starting a family—these are all great milestones for young adults to reach as they begin crafting a life that’s truly their own. Buying a home has traditionally been a milestone too—but one that feels increasingly out of reach for young people, and maybe those with a few gray hairs, as well.

 

We’ve had many clients come to us concerned that their children, or they themselves, won’t be able to buy a home. It’s a valid concern. Housing costs are high right now, and don’t seem to be going down anytime soon. But there’s one tool that many worried prospective homebuyers should know about that can help reduce some of the stress of buying a house: the First Home Savings Account, or FHSA.

 

This federally-backed account has a lot in common with the more familiar TFSA, but contributions into a FHSA are tax deductible and can be withdrawn under certain conditions without being counted as taxable income. In order to use the FHSA, you must be—as the name suggests—buying a house for the first time, either for yourself or someone with a disability you’re working on behalf of. You can claim up to $8,000 in deposits as tax deductible each year, for a lifetime maximum of $40,000. But don’t fret if you did not reach your maximum claims during the year. Know that if you did not contribute the max amount of $8,000, the remainder that you could have contributed can be added to the limit the following year to make up the difference. Be aware that there are a few caveats to this type of account. The money must be used toward the purchase or construction of a house or property, and you must live in that house within a year of your first withdrawal from the account. If you still have money in the account after fifteen years—or by the time you turn 71—you can transfer it to an RRSP or other type of account. Keep in mind, that those funds may be taxed depending on the type of account you are transferring to.1

 

Now, $40,000 isn’t going to buy you a home in most places, but it is a good chunk of money that can be used toward one of the biggest purchases a person can make. Hopefully, supply will catch up to demand at some point, and we’ll see the housing shortage ease. Furthermore, chances are good that the Bank of Canada’s continued trimming of interest rates will help make buying a home easier for many. But if buying a home is on your radar, either for yourself or for a loved one, the FHSA can be a great resource for saving for the day when you can finally hold that set of keys in your hand.

 

If you’re wondering whether an FHSA makes sense for you, we are happy to chat. And if you’re not a first-time homebuyer yourself but have a child or other loved one who is, please feel free to share this letter or send them our way with any questions they have. Our door is always open!

 

Sincerely yours,

 

The Omell Financial Group

 

 

 

1 “First Home Savings Account,” Government of Canada, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html

 

Sourced from Bill Good Letters Library

 

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