Frequently Asked Questions about the FHSA

16 Oct 2024 | Your goals

Frequently Asked Questions about the FHSA
What are the FHSA eligibility requirements? What is the FHSA contribution limit? Can I use both the FHSA and the HBP to buy a first home? Here are answers to some of the most frequent questions about the FHSA.

ELIGIBILITY

What are the FHSA eligibility requirements? You can open an FHSA if:
  • You are 18 or older (not more than 71 on December 31)
  • You are a Canadian resident
  • You or your spouse or common-law partner didn’t own a primary residence you were living in the year before the account was opened or during the previous 4 calendar years

CONTRIBUTION

What is the FHSA contribution limit? Your contribution room is $8,000 per year, up to a lifetime limit of $40,000. If you contribute less than the annual limit, you can carry forward the unused room (maximum $8,000) to the following year. So each year, you can use up to $8,000 of the unused portion, up to a maximum annual contribution of $16,000. What is the FHSA contribution deadline? The deadline is December 31 of the tax year. You can deduct your contributions on your tax return the year you make them, or later on to take advantage of the tax deduction in a future year. Is there a penalty if I exceed my FHSA contribution limit? Yes. A 1% tax on excess contributions to an FHSA would apply each month. You can remove this penalty by withdrawing the excess amount. Otherwise, the excess amount is deducted from your contribution limit for the following year. Can I contribute to my child’s or spouse’s or common-law partner’s FHSA? No. You can’t directly contribute to another person’s FHSA. However, you can personally give money to your child or spouse or common-law partner so they can contribute to their FHSA. In all cases, only the FHSA’s holder can make contributions and claim tax deductions for those contributions. In addition, investment income generated in the FHSA will not go to the person who gave money to the account holder. Do I have to deduct my contributions on my tax return the same year they are made? No. You don’t have to deduct contributions for the year that you make them. This means that contributions you make during a year you are earning a lower income could be used to reduce your taxable income for a year you’re earning a higher income. For example, a student with a part-time job can contribute $1,000 to their FHSA but wait until they have a higher salary after they graduate before applying the corresponding deduction. They could then get better tax savings. Can I combine my FHSA with my spouse’s or common-law partner’s FHSA to buy a qualifying home? Yes, you can combine your FHSA funds to buy a first qualifying home. Can I withdraw more than $40,000 from my FHSA? Yes, you can withdraw more than $40,000 from your FHSA. Depending on your investment strategy and resulting gains, you may be able to withdraw more than your total contribution amount if your investment does well. Also, any investment income generated in your FHSA is tax-free. Do I have to pay back the FHSA? Unlike RRSP withdrawals under the HBP, you don’t have to pay back the money you withdraw from your FHSA.

FHSA VERSUS HBP

What is the difference between the FHSA and HBP? While both the FHSA and HBP can help first-timer homebuyers achieve homeownership, there are a few key differences. One of the biggest differences is that you will have to pay back the money you withdraw from your RRSP for the HBP. When you think about it, you are essentially borrowing money from your RRSP (which typically is reserved for your retirement), so you are required to make repayments. But you will have time to do this gradually. You have up to 15 years to top up your account. On the other hand, with the FHSA, the money you contribute is tax-deductible and the withdrawals are tax-free when you use it towards your qualifying home. Basically, you are not borrowing money so there is nothing you have to pay back. Can I use both the FHSA and the HBP to buy a first home? If eligible, you can combine funds from the FHSA and HBP for the same qualifying home purchase. Taking advantage of both can help you save for a down payment.

CLOSING THE FHSA ACCOUNT

Is there a deadline for closing my FHSA account? You must close your FHSA by one of the following dates, whichever comes first:
  • December 31 of the year you turn 71
  • December 31 of the year of the 15th anniversary of opening your FHSA
  • December 31 of the year following your first qualifying withdrawal
What happens to my FHSA if I don’t use it? If you don’t use the funds in your FHSA, you can choose to:
  • Transfer the money to a registered retirement savings plan (RRSP) or a registered retirement income fund  (RRIF), without affecting your RRSP contribution room and without paying tax the year of the transfer
  • Withdraw the money and pay the tax on that amount
Will transfers from my FHSA to my RRSP affect my RRSP contribution room? No, such transfers will not affect your RRSP contribution room, but you will not get back any FHSA contribution room corresponding to the funds withdrawn.

What are the FHSA eligibility requirements? What is the FHSA contribution limit? Can I use both the FHSA and the HBP to buy a first home?

Here are answers to some of the most frequent questions about the FHSA.

ELIGIBILITY

What are the FHSA eligibility requirements?
You can open an FHSA if:

  • You are 18 or older (not more than 71 on December 31)
  • You are a Canadian resident
  • You or your spouse or common-law partner didn’t own a primary residence you were living in the year before the account was opened or during the previous 4 calendar years

CONTRIBUTION

What is the FHSA contribution limit?
Your contribution room is $8,000 per year, up to a lifetime limit of $40,000.

If you contribute less than the annual limit, you can carry forward the unused room (maximum $8,000) to the following year.

So each year, you can use up to $8,000 of the unused portion, up to a maximum annual contribution of $16,000.

What is the FHSA contribution deadline?
The deadline is December 31 of the tax year. You can deduct your contributions on your tax return the year you make them, or later on to take advantage of the tax deduction in a future year.

Is there a penalty if I exceed my FHSA contribution limit?
Yes. A 1% tax on excess contributions to an FHSA would apply each month. You can remove this penalty by withdrawing the excess amount. Otherwise, the excess amount is deducted from your contribution limit for the following year.

Can I contribute to my child’s or spouse’s or common-law partner’s FHSA?
No. You can’t directly contribute to another person’s FHSA. However, you can personally give money to your child or spouse or common-law partner so they can contribute to their FHSA.

In all cases, only the FHSA’s holder can make contributions and claim tax deductions for those contributions. In addition, investment income generated in the FHSA will not go to the person who gave money to the account holder.

Do I have to deduct my contributions on my tax return the same year they are made?
No. You don’t have to deduct contributions for the year that you make them. This means that contributions you make during a year you are earning a lower income could be used to reduce your taxable income for a year you’re earning a higher income.

For example, a student with a part-time job can contribute $1,000 to their FHSA but wait until they have a higher salary after they graduate before applying the corresponding deduction. They could then get better tax savings.

Can I combine my FHSA with my spouse’s or common-law partner’s FHSA to buy a qualifying home?
Yes, you can combine your FHSA funds to buy a first qualifying home.

Can I withdraw more than $40,000 from my FHSA?
Yes, you can withdraw more than $40,000 from your FHSA. Depending on your investment strategy and resulting gains, you may be able to withdraw more than your total contribution amount if your investment does well. Also, any investment income generated in your FHSA is tax-free.

Do I have to pay back the FHSA?
Unlike RRSP withdrawals under the HBP, you don’t have to pay back the money you withdraw from your FHSA.

FHSA VERSUS HBP

What is the difference between the FHSA and HBP?
While both the FHSA and HBP can help first-timer homebuyers achieve homeownership, there are a few key differences.

One of the biggest differences is that you will have to pay back the money you withdraw from your RRSP for the HBP. When you think about it, you are essentially borrowing money from your RRSP (which typically is reserved for your retirement), so you are required to make repayments. But you will have time to do this gradually. You have up to 15 years to top up your account.

On the other hand, with the FHSA, the money you contribute is tax-deductible and the withdrawals are tax-free when you use it towards your qualifying home. Basically, you are not borrowing money so there is nothing you have to pay back.

Can I use both the FHSA and the HBP to buy a first home?
If eligible, you can combine funds from the FHSA and HBP for the same qualifying home purchase. Taking advantage of both can help you save for a down payment.

CLOSING THE FHSA ACCOUNT

Is there a deadline for closing my FHSA account?
You must close your FHSA by one of the following dates, whichever comes first:

  • December 31 of the year you turn 71
  • December 31 of the year of the 15th anniversary of opening your FHSA
  • December 31 of the year following your first qualifying withdrawal

What happens to my FHSA if I don’t use it?
If you don’t use the funds in your FHSA, you can choose to:

  • Transfer the money to a registered retirement savings plan (RRSP) or a registered retirement income fund  (RRIF), without affecting your RRSP contribution room and without paying tax the year of the transfer
  • Withdraw the money and pay the tax on that amount

Will transfers from my FHSA to my RRSP affect my RRSP contribution room?
No, such transfers will not affect your RRSP contribution room, but you will not get back any FHSA contribution room corresponding to the funds withdrawn.

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