FHSA -- First home savings account, a mix of TFSA and RRSP for house buying

[Goldielocks]

Does anyone have good information on this one?  FHSA? 
Due to open up in spring this year 2023.

$8k/yr limit, $40k contribution cap, max 15 yrs account. 
You must not have had a primary owned residence in the past 5years. 
But... I can't tell if that is when you set it up or when you pay out the money.

Other tidbits -- It is a TFSA with no taxes on withdrawal -- IF you withdraw for buying your first home...
AND, like an RRSP, you can get a tax deduction for the $$'s you put in there (up to you to claim or not each year).   If you don't use it within 15 years, or you turn 71, you can roll it into available RRSP  / RRIF  room, or you pay tax on withdrawing it.

Any thoughts on this new savings vehicle? 
It doesn't have the impact of a long term TFSA held for decades...
It does increase available tax deferred savings (if your RRSP is maxed out).

Would it even be good for someone in a low marginal bracket?  Hmm I am not sure because of tax free dividends for the under $46k/yr group, if you don't plan to use it to buy a home...?

[Prairie Moustache]

I think this is as good of information as you'll get: https://www.canada.ca/en/department-finance/news/2022/08/design-of-the-tax-free-first-home-savings-account.html

My question is what if one were to fill this up, purchase a home and use funds from a non-FHSA HISA or other account? Would those funds just be transfered to an RRSP and left to grow tax free until retirement? I haven't found info on that anywhere yet, unless I missed it in the article I linked.

[Goldielocks]

I think this is as good of information as you'll get: https://www.canada.ca/en/department-finance/news/2022/08/design-of-the-tax-free-first-home-savings-account.html

My question is what if one were to fill this up, purchase a home and use funds from a non-FHSA HISA or other account? Would those funds just be transfered to an RRSP and left to grow tax free until retirement? I haven't found info on that anywhere yet, unless I missed it in the article I linked.

The FHSA is a "trust" that, like a RESP, has a time limit from the first $$'s put into it.   15 years for FHSA, and 35 years for an RESP.

You would have to choose to transfer it to an RRSP / RRIF (if room available) or paid out to you and taxed like an RRSP (unless you never claimed the deduction).

[JAYSLOL]

Anyone know if my wife and I would be able to each max out an HFSA and then combine them to purchase a home since it would be in both our names?

[Missy B]

Anyone know if my wife and I would be able to each max out an HFSA and then combine them to purchase a home since it would be in both our names?

Since both spouses are allowed their own separate HFSA, the answer would have to be yes.

The debut of this account has been badly handled by our illustrious govt. All the questions on this board should have already been directly addressed in govt communications already, and they haven't.

[Missy B]

I thought I read initially, when they FHSA was introduced, that you could not also use HBP, but saw several references just now that you can. 35K + 40K times 2 is a very meaningful downpayment, should you have the funds available.

[Gerard]

Something about the FHSA that only fully struck me recently: you can transfer funds from an FHSA to an RRSP or RRIF *without affecting your RRSP contribution room*. In other words, this is a way for everyone to plow an extra $40K ($8K/yr) into an RRSP and get the tax deferral benefits, even if we don't plan to buy a home.

[RetiredAt63]

The debut of this account has been badly handled by our illustrious govt. All the questions on this board should have already been directly addressed in govt communications already, and they haven't.

There was masses and masses of confusion when the TFSA was introduced.   Whole books were written to explain the basics.  Same when the RRSP was introduced.  Governments just have problems trying to explain these and get them through the startup issues.

[RetiredAt63]

Way way back there was the RHOSP - Registered Home Ownership Savings Plan - also meant for first-time home buyers.. We used it to buy our first house back in the late 1970s.   It was a shame when they ended it.

This one sounds a bit better re the taxation aspects. 

[okits]

Something about the FHSA that only fully struck me recently: you can transfer funds from an FHSA to an RRSP or RRIF *without affecting your RRSP contribution room*. In other words, this is a way for everyone to plow an extra $40K ($8K/yr) into an RRSP and get the tax deferral benefits, even if we don't plan to buy a home.

The FHSA is a tasty treat for a small sliver of the population who qualifies to use it and has a high marginal tax rate and can max out the extra pseudo-RRSP contribution room.  The home ownership rate is so high, and I would guess is even higher among people who have the high tax rate and extra $8k lying around, that I expect not that many people will end up using it as bonus RRSP room.  But it's nice if you can!

[Gerard]

The FHSA is a tasty treat for a small sliver of the population who qualifies to use it and has a high marginal tax rate and can max out the extra pseudo-RRSP contribution room.  The home ownership rate is so high, and I would guess is even higher among people who have the high tax rate and extra $8k lying around, that I expect not that many people will end up using it as bonus RRSP room.  But it's nice if you can!

It's a helpful hack for people with a high savings rate and no intention of buying a house, who will be withdrawing the money in a retirement with a very low tax rate. Hey, wait a minute... that's us! :-)

[RetiredAt63]

They cut it off at 71, so I can't use it.  Which is a shame.  I am happy renting now, but I can imagine people who lived in a big city and always rented, wanting to retire to someplace a bit more reasonable and buy a house.  Or, for people like me, renting and thinking a condo, especially a condo designed for seniors, would make sense to buy.  But no FHSA eligibility. 

[Goldielocks]

Something about the FHSA that only fully struck me recently: you can transfer funds from an FHSA to an RRSP or RRIF *without affecting your RRSP contribution room*. In other words, this is a way for everyone to plow an extra $40K ($8K/yr) into an RRSP and get the tax deferral benefits, even if we don't plan to buy a home.

Are you sure about that -- you don't need available RRSP room to roll it into it, if you don't use it to by your first property?   My understanding was a bit different.

You do have extra room while the FHSA is active, but it needs to be closed up by spending it or rolling into an RRSP after 15 years (need to check notes).

[okits]

Something about the FHSA that only fully struck me recently: you can transfer funds from an FHSA to an RRSP or RRIF *without affecting your RRSP contribution room*. In other words, this is a way for everyone to plow an extra $40K ($8K/yr) into an RRSP and get the tax deferral benefits, even if we don't plan to buy a home.

Are you sure about that -- you don't need available RRSP room to roll it into it, if you don't use it to by your first property?   My understanding was a bit different.

You do have extra room while the FHSA is active, but it needs to be closed up by spending it or rolling into an RRSP after 15 years (need to check notes).

That feature has been widely reported (that the FHSA amounts effectively becomes bonus RRSP contribution room if not used for a home).  The official page's wording has changed so it's less clear, but here's the relevant point:

Generally, an amount that is transferred directly from your FHSAs to your RRSPs or RRIFs will not impact your unused RRSP deduction room or your unused FHSA participation room.

If you do not do a direct transfer, the amount you withdraw from your FHSAs would be a taxable withdrawal and would be treated as a new RRSP contribution. That new contribution would reduce your unused RRSP deduction room and could result in RRSP excess contributions in certain cases.

I suspect there are so few people to make use of that feature that they're not worried about it.

[Gerard]

I suspect there are so few people to make use of that feature that they're not worried about it.

Or, equally plausibly, that the people who benefit from it the most are the upper middle class, who often benefit from the actions of politicians. :-)

[okits]

I suspect there are so few people to make use of that feature that they're not worried about it.

Or, equally plausibly, that the people who benefit from it the most are the upper middle class, who often benefit from the actions of politicians. :-)

You are wise and correct. 😁

[Lews Therin]

Something about the FHSA that only fully struck me recently: you can transfer funds from an FHSA to an RRSP or RRIF *without affecting your RRSP contribution room*. In other words, this is a way for everyone to plow an extra $40K ($8K/yr) into an RRSP and get the tax deferral benefits, even if we don't plan to buy a home.

Are you sure about that -- you don't need available RRSP room to roll it into it, if you don't use it to by your first property?   My understanding was a bit different.

You do have extra room while the FHSA is active, but it needs to be closed up by spending it or rolling into an RRSP after 15 years (need to check notes).

That feature has been widely reported (that the FHSA amounts effectively becomes bonus RRSP contribution room if not used for a home).  The official page's wording has changed so it's less clear, but here's the relevant point:

Generally, an amount that is transferred directly from your FHSAs to your RRSPs or RRIFs will not impact your unused RRSP deduction room or your unused FHSA participation room.

If you do not do a direct transfer, the amount you withdraw from your FHSAs would be a taxable withdrawal and would be treated as a new RRSP contribution. That new contribution would reduce your unused RRSP deduction room and could result in RRSP excess contributions in certain cases.

I suspect there are so few people to make use of that feature that they're not worried about it.

Wow. I was going to comment that it was unclear, but THE WEBSITE HAS MADE IT CLEAR. There is no effect on unused RRSP deduction room.

Source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/withdrawals-transfers-out-your-fhsas.html#h-3-1

If you go down to ''Transfers from your FHSAs to your RRSPs or RRIFs'' and look at the first example''

-''Anthony opened his FHSA in 2023. Over the years, he contributed the maximum amount to his FHSA, reaching his lifetime FHSA limit of $40,000 in 2027. It is now 2038, and Anthony must close his account by December 31, 2038, since it will reach the maximum participation period  of fifteen years on that date. Anthony does not have an excess FHSA amount.

Anthony fills out Form RC721, Transfer from your FHSA to your FHSA, RRSP or RRIF and asks his financial institution to do a direct transfer of all of the property in his FHSA to his RRSP and to close his FHSA once the property has been transferred.

Since it is direct transfer and Anthony has no excess FHSA amount, there are no tax consequences and there will be no impact on his unused RRSP deduction room.
 
After the transfer is completed on August 28, 2038, the property from Anthony’s FHSA that is now in his RRSP will be subject to the normal RRSP rules. If Anthony decides to withdraw amounts (which may include this amount) from his RRSP at a later date, the rules on withdrawing amounts from his RRSP will apply.''


I don't know when this was put in place, but it's no longer murky. It's 100% extra RRSP space now.