Young Canadians are jumping on first home savings accounts (FHSAs) as a way to help finance their homeownership dreams.
In its debut year, nearly half a million Canadians opened an FHSA, according to fresh tax filing data from Statistics Canada. And it’s not surprising why – it offers a powerful combination of tax benefits that make it one of the most attractive savings tools for aspiring homeowners.
The FHSA is essentially a hybrid account, blending the best features of an RRSP and a TFSA. Contributions are tax-deductible, like an RRSP, helping you reduce your taxable income. Then, when you’re ready to buy your first home, you can withdraw the funds tax-free – just like a TFSA. It’s a win-win.
So who’s using it? The biggest wave of adopters has come from younger Canadians aged 25 to 34, who made up over 57% of all FHSA contributors. These are likely millennials and older Gen Zs who are serious about getting into the real estate market. Notably, more than 61% of contributors earned over $60,000, suggesting that higher-earning young professionals are leading the charge.
How the down payment program works
An FHSA allows contributions of $8,000 a year for five years for a lifetime maximum contribution amount of $40,000 ($80,000 per couple). It’s, therefore, best suited for people looking to buy a home a few years down the road.
You can’t carry forward any unused contributions like you can with your RRSP or a TFSA nor are you required to repay the funds you withdraw. But, since the savings are meant specifically for buying a first home, any amount withdrawn for another purpose will be taxed, similar to an RRSP.
It’s beneficial to put your first $8,000 of annual savings towards an FHSA and then contribute any additional savings you may have into an RRSP or a TFSA.
This savings tool is also a great way for parents who are planning to gift a down payment towards their children’s first home to provide $8,000 annually to grow their kid’s FHSA and help them take advantage of a tax deduction.
Once you’ve made a withdrawal, you’ll be required to close your FHSA within a year. And if you don’t use the funds for a first home purchase within 15 years of opening an account, you’ll be required to close it, transfer the money to an RRSP or registered retirement income fund, or withdraw it as taxable income.
