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The First Home Savings Account (FHSA) is a registered plan allowing prospective home buyers to save for their first home tax-free (up to certain limits) 

 You can open an FHSA starting April 1, 2023, and contribute a lifetime maximum of up to $40,000.

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Q What are the eligibility criteria? 
ATo be eligible for the FHSA, a client: 
– Must be a Canadian resident and have a social insurance number 
– Must be of legal age in their province of residence 
– Must be under 71 years of age as of December 31 of the current year 
– Must not have lived in a qualifying home in Canada that the client or the client’s spouse owned during the part of the calendar year preceding the opening of the FHSA or during the preceding four years. 

Q: What types of FHSA transfers are tax-deductible on a client’s tax return? 
A: – Transfers from TFSAs and non-registered savings plans are tax deductible. 
– Transfers from RRSPs and other FHSAs are not, as these contributions have already allowed the client to benefit from a deduction. 

Q: Are FHSA withdrawals or transfers taxable? 
A: – Withdrawals from an FHSA to purchase a qualifying home are not taxable. This applies to contributions as well as to the returns generated during the investment period

– Non-qualifying FHSA withdrawals 
– not used to purchase a first home 
– Are taxable according to your client’s tax bracket

– Direct transfers from an FHSA to an RRSP or RRIF have no tax consequences. 
The client also retains the available RRSP room. Amounts will be taxed according to the applicable rules when they are withdrawn from the client’s RRSP or RRIF. 
– Direct transfers from one FHSA to another have no immediate tax consequences as long as they are direct transfers. 

Q: What is the maximum participation period of an FHSA? 
A: Your client’s FHSA will close on December 31 of the year in which the earliest of the following events occur: 
–The 15th anniversary of opening their first FHSA 
– Their 71st birthday 
– The year following their first qualifying withdrawal for purchasing a first home. 
For example, if your client makes a qualifying withdrawal in 2031, their FHSA must be closed by the end of 2032. If your client does not use the funds in their FHSA during the participation period, they can transfer the amounts to their RRIF or RRSP without affecting their unused deductions.

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Q: Can my client have more than one FHSA? 
A: Yes, your client can have more than one FHSA. However, they must ensure that their total contributions are within the $40,000 lifetime limit or the $8,000 annual contributions to which they are entitled. Please note that the participation period begins when their first contract is issued. They will, therefore, have to close all their FHSA accounts once the participation period has elapsed. 

Q: Can my client contribute to their child’s, a relative’s or a friend’s FHSA?

A: No, they cannot contribute directly to their child’s, a relative’s or a friend’s FHSA since only the FHSA holder can contribute. However, they can gift money to their child, a relative or a friend, who can then use it to contribute to their own FHSA. 

Q: If my client gifts money to a relative or friend so that they can contribute to their own FHSA, who is entitled to the tax deduction?
A: Since only the holder of an FHSA can contribute to it, the person who received the gift can deduct the contribution amount on their income tax return. 

Q: Is my client penalized if they exceed the maximum contribution allowed? 
A: Yes. If your client exceeds their contribution limit, they will have to pay a penalty of 1% of the excess amount for each month there is a surplus in the account. Please note that, unlike RRSPs, your clients are not allowed an excess of $2,000 before they are penalized. 

Q: Once my client has contributed to their FHSA, can they carry forward their tax deductions to another year? 
A:  Yes. As with an RRSP, your client can carry forward unused deductions to future years. 

Q: Does my client need an available RRSP room to transfer amounts from an FHSA to an RRSP? 
A:  No. An amount transferred directly from an FHSA to an RRSP does not impact the unused RRSP deduction room. Your client will retain the available RRSP room. 

Q: How long does my client have to keep their savings in their FHSA before they can make a qualifying withdrawal? 
A: There is no minimum number of days that contributions or transfers to an FHSA must remain in the plan before they can be used for a qualifying withdrawal. 

Q: My client’s spouse is already a homeowner. Can my client open an FHSA? 
A:  No, your client cannot open an FHSA. To be eligible, neither your client nor their spouse can have owned a qualifying home in Canada that they occupied as their primary residence within the past four years or in the current year. However, if your client opened an FHSA before becoming the common-law spouse of a homeowner, they can continue to contribute to their FHSA and use it to purchase their first home. Only the FHSA holder must meet the eligibility criteria in this context. 

Q: Can my client combine their FHSA and RRSP (under the HBP) to purchase their first home? 
A: Yes. Your client can combine contributions with returns from their FHSA and up to $35,000 from their RRSP to purchase their first home in Canada. They can use this approach to maximize their down payment on their first home.

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