As housing prices rise, many Canadians, especially the younger generation, struggle to save for a down payment. To address this, the government introduced the tax-free First Home Savings Account, helping first-time homebuyers by allowing up to $8,000 in annual contributions (up to $40,000 lifetime limit) for a down payment within 15 years. Contributions are tax-deductible, similar to an RRSP, and withdrawals for a first home, including investment income, are non-taxable. Accounts are available at seven financial institutions, with more to come.
Quick facts:
- The First Home Savings Account helps Canadians become first-time homebuyers by allowing up to $8,000 in annual contributions (up to $40,000 lifetime limit) for a down payment within 15 years.
- Any Canadian resident aged 18 to 71 can open an account.
- Unused contribution room and unclaimed contributions can be carried forward.
- Financial institutions have offered the account since April 1, 2023.
- It can be combined with the Home Buyers’ Plan.
- Part of the federal government’s plan to accelerate housing construction and affordability.
Examples:
Here is an example of how the First Home Savings Account can help Canadians save for their first down payment and benefit from tax relief:
- Olivia and Amira are looking for a first home in Ontario. They each save the maximum $8,000 per year in their First Home Savings Account, which they can deduct from their income at tax time. They both make between $70,000 and $100,000, which means for every $100 contributed to their First Home Savings Account they receive $20.50 in federal tax savings to each receive an annual federal tax refund of $1,640.
- After five years of saving, Olivia and Amira have a combined $90,000 (including $10,000 in investment returns) that they can withdraw tax-free for a down payment on their first home. Over five years, they will have benefitted from a combined $18,450 in federal tax relief, in addition to nearly $8,000 in provincial tax relief.
- They use their First Home Savings Account as a 10 per cent down payment to qualify for a mortgage and purchase their first home for $900,000.
- When Olivia and Amira file their taxes after buying their first home, they will receive an additional $1,500 in federal tax relief through the First-Time Home Buyers’ Tax Credit.
If you need more information on how to maximize your tax savings, don’t hesitate to book a free consultation with one of our experts.
