If you or a loved one is saving to buy a home, Canada’s new First Home Savings Account might be on your radar. The account allows prospective home buyers to save for a down payment tax free. Georgia Swan, Tax and Estate Planner, TD Wealth, joins Greg Bonnell to dig into some common FHSA questions many couples, parents and other aspiring homeowners may have.
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* If you're hoping to buy a home in the future, the First Home Savings Account, also known as the FHSA, might be on your radar. Launched by the Federal government on April 1, this account allows prospective home buyers to save for a home tax free. Georgia Swan, tax and estate planner with TD Wealth, joins us now to answer some questions that may come up if you decide this account is right for you. Georgia, it's always a pleasure to have you with us.
* Thanks for inviting me back.
* So let's start with this. The main features of the First Home Savings Account, what are they?
* Well, it's a registered account, which maybe people recognize if they have a TFSA or an RSP. It's very similar. Like an RSP, when you make a contribution to your First Home Savings Account, that contribution is tax deductible. But like a TFSA, the growth in the account accumulates tax free. So that's a great thing about it.
* You have to be 18 years of age or older and a Canadian resident to open one. And the contribution limit is $8,000 per year to a maximum of $40,000. The great thing about it is if you don't contribute the full $8,000 in a particular year, you can actually carry that amount forward. So that's something that's really great for people that maybe have a little bit of changes in their income from one year to the next.
* Now, someone who perhaps bought a home say two decades ago, which would include someone like me, I use something called the Home Buyers' Plan. How is this different than the Home Buyers' Plan? And the Home Buyers' Plan still exists as far as I know. So can you use them together?
* You can use them together. So the Home Buyers' Plan is actually similar to borrowing money from your RSP. So basically as long as you're going to use the money from your RSP to purchase a first home, you can take it out of your RSP up to $35,000. And then you can use it to purchase the home. But eventually, you have to pay the money back to your RSP.
* So the first home savings account is a little bit different, in that when you take the money out again to purchase your first home, there are some limits. You have to do it within 15 years, up to December 31 of the 15th year after it was opened, to December 31 of the year that you turned 71, or within one year after your first withdrawal. But when you take the money out, it is tax-free. And you don't have to pay it back anywhere. So that's the good thing about it that you can use both of these accounts. You can even actually use your TFSA as well.
* OK, so some important distinctions there. First Home Savings Account, it seems self-evident in the title what we're talking about. We're talking about a first home. But with these things, sometimes there's, beneath the surface, some interesting wrinkles. So what does it mean under this plan for a first home?
* Well, basically you have to be 18 years of age or older. And you have to be a Canadian resident to open this account in the first place. And then you can't have owned a home yourself or co-owned it with someone for the four years prior to purchasing your first home. So that's a good thing, because maybe if you had a home a long time ago, but something happened and you lost it, as long as you haven't owned one in the last four years, you can actually avail yourself of this.
* OK, so that's very interesting. Obviously, a lot of people, when they're at the home buying, the home-owning journey, they don't do it on their own. There was no way I could have gotten into the property market 21 years ago if my wife hadn't been part of that plan as well. So two people together. So you get this home savings account. How does it work when you're talking about a spouse or a partner?
* Well, you can only-- only one person can have it at a time. So the idea is that if your spouse has one and you have one, which you can do, then you can both use the funds for this purchase of the same home. So that's great because it's almost doubling it. What I meant is you can't own it jointly. So you can have your own. Your spouse can have their own--
* Then, you can both draw from it--
* And you get both draw together. Yeah, exactly.
* OK, so that's an important one, too. Here's something that comes up a lot. And I know that a lot of parents or grandparents are worried about the next generation, because it's tough. It's a lot tougher than it was in the past to get in. Can a parent open up one of these savings accounts for their kid?
* Well, you can't open one for your child or grandchild, but you can highly encourage them to do so and then gift them the money to actually deposit into it. And that's perfectly fine. So it is a little bit of financial literacy there to teach the kids about how important this is.
* Now you mentioned 15 years when we were talking off the top about how this plan is structured and what it looks like. What happens if, you know, you thought you were going to buy a place. You thought this is what you wanted to do. This is your goal, and you decide at some point, home ownership is not for me. But you have put this money in here. What do you do?
* Well, if you can't use it within those 15 years, you can actually roll it into your RSP. So it's still working there for you. That tax deferral still compounds for you. And that's one of the best parts of it. It's not lost.
* All right, very interesting stuff, and great information. Georgia, always a pleasure.
* Thank you very much.
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* If you're hoping to buy a home in the future, the First Home Savings Account, also known as the FHSA, might be on your radar. Launched by the Federal government on April 1, this account allows prospective home buyers to save for a home tax free. Georgia Swan, tax and estate planner with TD Wealth, joins us now to answer some questions that may come up if you decide this account is right for you. Georgia, it's always a pleasure to have you with us.
* Thanks for inviting me back.
* So let's start with this. The main features of the First Home Savings Account, what are they?
* Well, it's a registered account, which maybe people recognize if they have a TFSA or an RSP. It's very similar. Like an RSP, when you make a contribution to your First Home Savings Account, that contribution is tax deductible. But like a TFSA, the growth in the account accumulates tax free. So that's a great thing about it.
* You have to be 18 years of age or older and a Canadian resident to open one. And the contribution limit is $8,000 per year to a maximum of $40,000. The great thing about it is if you don't contribute the full $8,000 in a particular year, you can actually carry that amount forward. So that's something that's really great for people that maybe have a little bit of changes in their income from one year to the next.
* Now, someone who perhaps bought a home say two decades ago, which would include someone like me, I use something called the Home Buyers' Plan. How is this different than the Home Buyers' Plan? And the Home Buyers' Plan still exists as far as I know. So can you use them together?
* You can use them together. So the Home Buyers' Plan is actually similar to borrowing money from your RSP. So basically as long as you're going to use the money from your RSP to purchase a first home, you can take it out of your RSP up to $35,000. And then you can use it to purchase the home. But eventually, you have to pay the money back to your RSP.
* So the first home savings account is a little bit different, in that when you take the money out again to purchase your first home, there are some limits. You have to do it within 15 years, up to December 31 of the 15th year after it was opened, to December 31 of the year that you turned 71, or within one year after your first withdrawal. But when you take the money out, it is tax-free. And you don't have to pay it back anywhere. So that's the good thing about it that you can use both of these accounts. You can even actually use your TFSA as well.
* OK, so some important distinctions there. First Home Savings Account, it seems self-evident in the title what we're talking about. We're talking about a first home. But with these things, sometimes there's, beneath the surface, some interesting wrinkles. So what does it mean under this plan for a first home?
* Well, basically you have to be 18 years of age or older. And you have to be a Canadian resident to open this account in the first place. And then you can't have owned a home yourself or co-owned it with someone for the four years prior to purchasing your first home. So that's a good thing, because maybe if you had a home a long time ago, but something happened and you lost it, as long as you haven't owned one in the last four years, you can actually avail yourself of this.
* OK, so that's very interesting. Obviously, a lot of people, when they're at the home buying, the home-owning journey, they don't do it on their own. There was no way I could have gotten into the property market 21 years ago if my wife hadn't been part of that plan as well. So two people together. So you get this home savings account. How does it work when you're talking about a spouse or a partner?
* Well, you can only-- only one person can have it at a time. So the idea is that if your spouse has one and you have one, which you can do, then you can both use the funds for this purchase of the same home. So that's great because it's almost doubling it. What I meant is you can't own it jointly. So you can have your own. Your spouse can have their own--
* Then, you can both draw from it--
* And you get both draw together. Yeah, exactly.
* OK, so that's an important one, too. Here's something that comes up a lot. And I know that a lot of parents or grandparents are worried about the next generation, because it's tough. It's a lot tougher than it was in the past to get in. Can a parent open up one of these savings accounts for their kid?
* Well, you can't open one for your child or grandchild, but you can highly encourage them to do so and then gift them the money to actually deposit into it. And that's perfectly fine. So it is a little bit of financial literacy there to teach the kids about how important this is.
* Now you mentioned 15 years when we were talking off the top about how this plan is structured and what it looks like. What happens if, you know, you thought you were going to buy a place. You thought this is what you wanted to do. This is your goal, and you decide at some point, home ownership is not for me. But you have put this money in here. What do you do?
* Well, if you can't use it within those 15 years, you can actually roll it into your RSP. So it's still working there for you. That tax deferral still compounds for you. And that's one of the best parts of it. It's not lost.
* All right, very interesting stuff, and great information. Georgia, always a pleasure.
* Thank you very much.
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