First Home Savings Account at Sightline Wealth Management

The FHSA is a tax-deferred, registered plan that allows prospective first-time Canadian-resident home buyers to save for their first home. Work with your advisor to establish an FHSA and start saving for your future home. Just like a Registered Retirement Savings Plan (RRSP), contributions may be deducted from taxable income. Like a Tax-Free Savings Account, however, contributions and any investment income within the FHSA can be withdrawn tax-free when used to purchase a qualifying home.

Why Consider an FHSA as Part of a Financial Plan?

• Up to $8,000 per year and up to $40,000 per lifetime can be contributed to an FHSA for the purchase of a first home.
• There is carry-forward of unused contribution room to a maximum of $8,000 from the prior years for as long as the account is open.
• Contributions are deductible from taxable income in the year of contribution or carried forward for use in future years. These deductions are in addition to and separate from contributions made to an RRSP.
• The FHSA can be used in addition to the Home Buyers’ Plan (HBP), which can provide investors with an additional $35,000 from their RRSP when used to purchase a qualifying home. Withdrawals can be made from both the FHSA and the HBP, which would allow for a down payment of a maximum of $75,000.
• To be eligible, an individual must be a Canadian resident between the ages of 18 and 71 and have a valid social insurance number. The individual must also qualify as a first-time home buyer, which means they have not lived in a home owned by them, their spouse or common-law partner in the year the FHSA is opened or the previous four years.

Important Details of the FHSA

• Eligible investments include those that are approved for other registered plans. Work with your advisor to select your appropriate investments.
• There is a lifetime contribution limit of $40,000.
• Contributions made in the first 60 days of one year cannot be carried back and deducted on the previous year’s income tax return.
• Contributions can only be deducted by the FHSA account holder. Parents or other family members wishing to contribute for a child’s FHSA should gift the contribution amount to the child, who can then use the deduction in the calendar year or carry it forward to deduct in future years.
• Individuals can hold more than one FHSA, however the contribution limits are by individual and not by account. A penalty tax of 1% per month will be applied on overcontributions to the FHSA for each month or part month the account exceeds the contribution limit.
• Unlike the HBP, there is no minimum number of days that contributions or transfers to an FHSA must stay in the FHSA before a withdrawal is made to purchase a qualifying home.

Withdrawal Rules

Qualifying withdrawals from an FHSA to buy a home are not taxable as long as the individual is a first-time home buyer and the funds are used to purchase a qualifying home in Canada by no later than October 1st of the year following the year of withdrawal.

• The same definition of a ”first-time” home buyer applies when the FHSA is opened as for the HBP, with the exception that individuals who have moved into a qualifying home can make the withdrawal up to 30 days after moving into the home.
• Withdrawals from the FHSA do not have to be repaid, unlike withdrawals from the HBP. Withdrawals do not restore contributions as do withdrawals from a TFSA.
• If the FHSA is not used to purchase a qualifying home within 15 years of the account opening, the FHSA will have to be closed.
• If the account is not closed before the maximum participation period ends, the account holder will be subject to taxes on the withdrawal (contributions and investment income). However, the balance on the FHSA can be transferred to the individual’s RRSP or RRIF on a tax-deferred basis without requiring RRSP contribution room.

Spousal Treatment of the FHSA

There are no spousal FHSA accounts available. However, individuals may gift funds to their spouse or commonlaw partner who can then contribute to the FHSA. While attribution typically applies on gifts to spouses, there is an exception for FHSAs, which will not tax the income or capital gains back to the giftor spouse. Also, upon withdrawal, only the account holder is required to report the income and pay tax (if applicable). No portion of any withdrawal is subject to attribution.

Death of an FHSA holder

Contributions or transfers made to the deceased holder’s FHSAs before the death of the holder would be tax deductible under the normal FHSA rules in the year of death. This means that any contributions made prior to death can be used as a tax deduction on the final income tax return. No contributions or transfers can be made to the deceased holder’s FHSAs after the date of death.

It is important to note that the taxation of funds in the FHSA of a deceased account holder will vary depending on the type of beneficiary designated. The types of beneficiary designations can include the following:

1. Successor Holder:
   The account holder designates a spouse or common-law partner. In this case, the spouse or common-law partner will become the new holder of the FHSA if they are a qualifying individual (i.e. at least 18 years of age, a Canadian resident and a first-time home buyer). They would have the option of transferring the full FHSA balance to their RRSP or RRIF, or receive the amount as a taxable distribution by no later than December 31st of the year following the year of death of the original account holder. If the spouse or common-law partner does not qualify to hold the FHSA, they will be required to withdraw the FHSA balance as a taxable distribution or transfer the funds to their RRSP or RRIF directly with no immediate tax consequences by no later then December 31st of the year following the year of death.
2. Beneficiary Designation:
   If the spouse or common-law partner is designated as a beneficiary on the FHSA, that individual cannot become the new holder of the FHSA but must receive the distribution of the FHSA as taxable income, or transfer the balance to their RRSP or RRIF on a tax-deferral by no later than December 31st of the year following the date of death. If beneficiaries are named other than a spouse or common-law partner (i.e. Parents), the amounts received from the FHSA would be taxable income to the beneficiary. No tax-deferred transfers are available in this situation. For parents gifting contributions to the FHSA of their child or children, this is an important discussion to have with your advisor.
3. No Beneficiary or Successor Holder Designated:
   In this case, the amount from the FHSA will be paid to the estate of the deceased and treated as taxable income. However, if the spouse or common-law partner is a beneficiary of the deceased’s estate, a joint election may be made with the estates’ legal representative to choose from one of the following options:
   –    Amount transferred from the deceased’s estate to the spouse or common-law partner’s FHSA, RRSP or RRIF on a tax-deferred basis.
   –    Payment can be made to the spouse or common-law partner from the deceased holder’s estate as taxable income to the spouse or common-law partner, thereby saving tax for the estate.

Summary

The FHSA is available through Sightline Wealth Management and is a great opportunity to save for a first home on a tax-free basis. To find out more, please contact your financial advisor.

Contact Us:
To speak to an Investment Advisor, please call (416) 943-4383 or toll free (855) 943-4383.
Otherwise, email us at invest@sightlinewealthmgt.com and an advisor will get back to you shortly.