Your Guide To The FHSA Tax Boost for First-Time Home Buyers in Canada

As part of the federal government’s 2022 budget presentation, they announced a new tax-free savings account called the compte d’épargne libre d’impôt pour l’achat d’une première propriété (CELIAPP in French) or Tax-Free First Home Savings Account (TFFHSA or FHSA for short) for first-time homebuyers. This new account, projected to be available in a few weeks, comes with a few restrictions:

• You must be 18 years or older but under 71.
• You must be a Canadian Resident.
• Maximum contribution of $8,000 per year to a max $40,000 contribution.
• You have 15 years from when the FHSA is first opened to use the funds.
• You cannot have lived in a home that either you or your spouse have owned in the current calendar year or the four previous calendar years.

What is the FHSA or CELIAPP?

The CELIAPP, TFFHSA or FHSA is a new type of registered savings account introduced by the government that combines the tax advantages of the existing Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). Beginning in April 2023, first-time buyers can leverage this new account to make tax-free contributions. 

Similarly, like the existing TFSA and RRSP, you can use the FHSA to save or invest in stocks, ETFs, and more. You can then allow these investments to grow tax-free in the account, avoiding capital gains and/or income taxes while saving to purchase a home. This account allows first-time buyers more contribution room while realizing more tax savings and provides more opportunities for tax-free investment growth.

Tell me: How Does the CELIAPP or FHSA Work?

The CELIAPP, TFFHSA or FHSA will allow first-time homebuyers to contribute up to $8,000 per year to a maximum lifetime contribution of $40,000. All withdrawals and returns on investments will remain tax-free as long as the funds are used to purchase a home within 15 years of opening the account. 

Like a Registered Retirement Savings Plan (RRSP), contributions to the new Tax-Free First Home Savings Account (TFFHSA or FHSA) will be tax deductible. Additionally, like a Tax-Free Savings Account (TFSA), any income or gains inside this new account and withdrawals will be tax-free. 

It’s important to note that withdrawals become fully taxable if not used to purchase a home. If you run out of time and your FHSA expires (after 15 years or you reach the age limit), you can transfer the funds tax-free to your RRSP (RRSP rules will then apply) without affecting your RRSP contribution room. 

Here’s Some Pros & Cons of TFSAAPP 

The pros of this new FHSA account are:

• Annual contributions of up to $8,000 annually to a maximum lifetime contribution of $40,000.
• If purchasing as part of a household, each individual can save in their own FHSA to put towards their downpayment. 
• You can claim an income tax deduction for contributions made during the tax year.
• Any gains earned inside the account are tax-free.
• Withdrawals are tax-free (as long as the funds are used to purchase a home).
• Once an account is open – unused contribution room can be carried over to the following years (to a max of $8,000).
• There is no requirement to repay the contributions that are withdrawn.

The cons of this new FHSA account are:

• You must be 18 years or older (based on your province’s age of majority – some require you to be 19).
• You cannot accrue or carry over contribution room unless you have an open FHSA account. 
• You are the only person that can contribute to the FHSA.
• You cannot be older than 71 years of age.
• The account can only be used once.
• The account must be closed after 15 years or when an account holder turns 71.
• The account must be closed by the end of the following year from when you first made a withdrawal (ex., If your first withdrawal is in March 2024, the account must be closed by Dec 31st, 2025).
• Withdrawals not used to purchase a home are fully taxable.

Additionally, it’s important to note that, like contributing to a TFSA or RRSP, first-time homebuyers would need additional funds to contribute to this new account. Those that already struggle to maintain regular contributions to a TFSA or RRSP may find it challenging to come up with additional funds to contribute to an FHSA or may have to prioritize which accounts make the most sense for the needs of their household. 

Here’s Some Pros & Cons of HBP for RRSP

The pros of leveraging the HBP from your RRSP include the following:

• You can withdraw up to $60,000 tax-free.
• There is a one-year grace period before you are required to begin repaying the withdrawn funds.
• You can use multiple RRSP accounts to withdraw funds (up to $60,000 total).

The cons of leveraging the HBP from your RRSP include the following:

• Funds withdrawn from your RRSP are considered a “loan” to yourself and must be repaid within 15 years; otherwise, it will be considered taxable income.
• Funds must have been in your RRSP for at least 90 days before withdrawal for your homebuyer’s plan.

Frequently Asked Questions

What is the max contribution per year for CELIAPP?

The maximum contribution to the CELIAPP, TFFHSA or FHSA will be $8,000 per year to a maximum of $40,000 per person. 

Can you use tax-free payments on a mortgage with CELIAPP?

No. This program has been designed to help Canadians save for their first home. Existing homeowners are not eligible for this account. 

Is CELIAPP a good choice for every first-time homebuyer?

No. As with current investment vehicles like the TFSA and RRSP, the best choice will always depend on many factors, such as when you plan to purchase your first home and if you have the additional funds to save in this type of account. Additionally, the restrictions may disqualify some homebuyers. 

Final Thoughts

With the new Tax-Free First Home Savings Account, the government has made investing in your future easier for first-time homebuyers. This account provides the combined perks of the current TFSA and RRSP accounts, allowing the funds to be tax deductible and tax-free. However, the annual and maximum contribution limits mean some pre-planning will need to occur before deciding to invest in this account, as it will take at least 5 years to maximize the lifetime contribution limit.