Canadian financial institutions will be scrambling to offer the tax-free first home savings account (FHSA) as the federal government has yet to release draft legislation or, indeed, much information about how it will work.
“If we’re looking to launch [the FHSA] in 2023, and then maybe do the first [tax] filing in 2024, our timelines are pretty aggressive,” said Robert Offen, manager of specialized services with AGF Investments Inc., during a tax panel at the Investment Funds Institute of Canada (IFIC) Operations Day in Toronto.
The Liberals introduced the FHSA in the 2022 federal budget to help Canadians save for a down payment on a first home. Contributions to the plan would be tax-deductible, much like an RRSP, but withdrawals would be tax-free, like a TFSA. There would be a lifetime contribution limit of $40,000 and an annual contribution limit of $8,000.
The new accounts are supposed to be ready for 2023, the budget stated.
Josée Baillargeon, senior policy advisor with IFIC, said the institute has met with officials from the Canada Revenue Agency (CRA) and the Department of Finance to discuss the rules governing the FHSA. IFIC also submitted an 11-page document in collaboration with other financial industry organizations to Finance with questions about the new plan.
Offen said the industry expects Finance to release draft legislation to implement the FHSA by the end of July, followed by a 60-day comment period. More draft legislation would likely follow in October, with final legislation expected to pass in mid-December.
“If we’re going to be releasing this in early 2023, we may have to start [building operations] before we actually know what we’re building, so it can be a bit of a concern there,” Offen said.
The industry is looking for more guidance about the FHSA in four key areas before it can move forward:
- client onboarding requirements;
- taxation rules, including required filing and forms;
- rules governing family connections, including whether there will be a spousal FHSA; and
- rules governing beneficiary designations and estates.
Offen said the industry expects to have further consultations with the CRA in the second half of the year.
“There’s a lot more unknowns than knowns at this point,” said Baillargeon.
She added that CRA and Finance officials have nevertheless been proactive in helping the industry prepare to launch the FHSA. “It’s going to be an ever-evolving process.”
In the same session, Benjamin Latta, manager of the CRS and FATCA Financial Institution Compliance Section with the Canada Revenue Agency, said that on-site Foreign Account Tax Compliance Act and Common Reporting Standard audits of financial institutions would resume in “late 2022 or early 2023.”
Latta also said the CRA does not intend to apply penalties “at this point in time” prior to performing an audit — giving the financial institution an opportunity to prove compliance. Being chosen for an audit does not necessarily indicate non-compliance, he said, since the CRA aims to audit a diverse and representative set of institutions.
– With files from Melissa Shin