Increase down payment power! Combine together with RRSP Home Buyers Plan (HBP) or use it alone.
Are you a first time home buyer in Canada aiming to secure your down payment while enjoying tax benefits?
Understanding its contribution limits, eligibility criteria, and strategic advantages can help pave your way to homeownerhsip.
Maximizing FHSA Contributions for a Tax Free Down Payment
FHSA allows eligible individuals to contribute a tax-deductible amount of up to $8,000 annually, accumulating to a maximum contribution limit of $40,000 within five years, assuming maximum annual contributions.
Important note, that annual unused contribution room is capped at $8,000, restricting the maximum yearly contribution to $16,000 (current year's limit + previous year's carry-forward).
Tax Free Savings and Withdrawals
Saving within an FHSA offers tax advantages, enabling growth on contributions tax-free. Additionally, withdrawals made for a qualified home purchase remain tax-exempt, including accrued interest from FHSA investments.
FHSA Eligibility and Account Details
To qualify for an FHSA, certain criteria must be met:
Being at least 18 years old (or 19 in some provinces)
Holding Canadian residency
Meeting the Canadian government's definition of a 'first-time homebuyer'
As a first-time homebuyer, you must not have owned or jointly owned a qualifying home in the current calendar year or the preceding 4 calendar years.
Utilizing FHSA Funds for Home Purchase
FHSA withdrawals for a home purchase can be used towards various expenses beyond the down payment, such as closing costs, legal fees, and moving expenses.
What Happens If You Don't Buy a Home?
If funds remain after 15 years from the opening date (or upon reaching 71 years of age), transferring the amount to an RRSP or RRIF maintains the tax-deferred status. However, not using the funds for a home purchase forfeits the tax-free withdrawal benefit.
Combining FHSA and Other Homebuying Options
Consider combining FHSA benefits with other programs, such as the Home Buyers' Plan (HBP), allowing withdrawals from RRSPs for a home purchase, maximizing your down payment potential.
Funds withdrawn from RRSP through the home buyer plan must be repaid within 15 years to keep the tax deferral benefits.
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