Budget 2022 announced a new savings account for first time home buyers – the Tax-Free Home Savings Account (FHSA). This is one of several initiatives designed to make housing more affordable for younger Canadians. In effect, the FHSA combines the best features of an RRSP (tax-deductible contributions and tax deferred income) and a TFSA (tax-free withdrawals for a qualifying first home purchase). It is an alternative to the Home Buyers’ Plan which allows for the tax-free withdrawal of up to $35,000 from an RRSP to purchase a qualifying first home. However, unlike the HBP, there is no requirement to repay withdrawals from a FHSA.
Draft legislation has now been released which includes details on the requirements to open a FHSA and the tax treatment of the FHSA and plan holder. As well, the Department of Finance released a background document which highlights the key tax attributes and administration requirements for these plans.
