Navigating the First Home Savings Account

A new type of account has appeared on the investment landscape in the past year, the First Home Savings Account (FHSA). While the account is primarily for younger Canadians trying to save for their first home, there is actually a wider range of people that may qualify to open one, and other scenarios where the account can be a useful financial planning tool. Rather than simply reviewing the basic detail of the account, let’s look at some of the ways the account can be utilized.

Typical Scenario - Young Saver

This would be the person the FHSA was introduced to help save for a down payment on their first home. While you get the same tax deduction by contributing to an FHSA as you would get by contributing to an RRSP (and without using any normal RRSP contribution room), you can withdraw the money from the FHSA on a tax-free basis, rather than having to “borrow it” from the RRSP and pay it back later under the Home Buyer’s Plan. While contributing to a TFSA will also allow the money to be taken out tax-free and not have to be repaid later, a TFSA does not provide the benefit of a tax deduction, so the FHSA is superior to both the RRSP and TFSA in this scenario.

Pro Tip

Reinvest the tax refund from your previous year’s FHSA contribution into the FHSA the following year. Keep in mind annual contribution limits, but this will let you max out your contribution room with less money “out of pocket”, or be able to make a contribution if you otherwise did not have any available funds to do so with.

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Additional Tax Shelter - High Earner

While there is no “Spousal FHSA” like there is with a Spousal RRSP, spousal attribution rules do not apply if a higher-income spouse gifts money to a lower-income spouse to contribute to the lower-income spouse’s FHSA with. This means none of the income or capital gains earned in the FHSA of the lower-income spouse will be attributed back to the higher-income spouse, nor will any portion of FHSA withdrawals be attributed back to the higher-income spouse either. Money can also be gifted from a parent to an adult child to fund their FHSA with no attribution rules to the parent either.

With the ability to save for a home down payment in an RRSP, TFSA and now FHSA, aspiring homeowners need to decide which account makes the most sense for them to contribute to. The good news is that you are not limited to investing in just one, and can save in all three if you have sufficient funds to do so. If you only have enough funds to contribute to one of the accounts or are looking to possibly use the FHSA for purposes other than saving for a home down payment, then it is wise to meet with an experienced Financial Advisor to determine what makes the most sense for your unique situation.

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Dennis Rubeniuk,  Investment Advisor

^{Disclaimer: This information has been prepared by Dennis Rubeniuk who is an Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.}

^{iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.}

^{This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax, legal or investment advice. Please obtain independent professional advice in the context of your particular circumstances.}

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