Over the last few years, housing prices have reached unprecedented levels, making it difficult for those looking to purchase their first home. Accumulating the significant downpayment needed to meet these higher prices has forced many potential new home buyers out of the market.
Many of us are familiar with using our Registered Retirement Savings Plan (RRSP) funds towards a downpayment under the existing Home Buyers’ Plan. It is an excellent tax sheltering option but is currently capped at a withdrawal of $35,000 that one can use to purchase a qualifying home. This amount may not be sufficient to participate in the current high-priced competitive market. With all these factors in play, the federal government launched the First Home Savings Account (FHSA) on April 1, 2023. Most institutions have indicated that it will be available sometime this year.
A first-time home buyer can benefit from the FHSAs features of depositing money into the account on a tax-deductible basis like an RRSP and redeeming funds tax-free like a Tax-Free Savings Account (TFSA) to purchase a qualifying home.
There is a lifetime contribution limit of $40,000 with an $8,000 annual contribution limit. Any unused room can be carried forward into subsequent years. A qualified first-time home buyer can also participate in the RRSP Home Buyers’ Plan (HBP) in conjunction with this account to establish a potentially higher down payment; both provide a tax reduction. If you’re a couple and are both qualifying home buyers, you can each have an account in your name.
Intergenerational wealth can be a great strategy to help alleviate the size of one’s estate by gifting funds to a child or grandchild to fund this account. It would not provide a tax benefit or deduction by doing so, but it could be a great early inheritance approach.
For more information, contact the Cowan Financial Services team at 519-651-6660 or 1-877-899-2194, email: wealthmanagement@cowangroup.ca.