The federal government proposed something “substantial” for first-time homebuyers in Thursday’s budget with the introduction of a new savings account, says Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth.
The Tax-Free First Home Savings Account (FHSA) would allow first-time homebuyers to save up to $40,000. Similar to an RRSP, contributions would be tax-deductible; like a TFSA, account withdrawals to buy a first home — including investment income — would be non-taxable.
“This would really be substantial to help people get that down payment for a home, instead of relying on the Home Buyers’ Plan,” Golombek said.
That plan, which allows homebuyers to withdraw from RRSPs to purchase a home, will still exist. “But you can’t do both for the same home,” Golombek said.
The FHSA will have an $8,000 annual maximum contribution limit, and unused contribution room can’t be carried forward.
When the Liberals proposed the savings account in last fall’s election campaign, it came with an age limit of 40. The age restriction was removed in the budget.
Another new detail, Golombek said, is that “you can transfer funds specifically from an RRSP to an FHSA,” subject to the $8,000 annual amount and $40,000 lifetime limits.
“If you don’t buy a home within 15 years, you’ve got to close the account,” he said. “And then, you can actually transfer what’s left into an RRSP or Registered Retirement Income Fund (RRIF), or pay taxes on it, if you choose.”
The government said it would would work with financial institutions to have the accounts available in 2023.
Any Canadian who is over the age of 18 and is a resident of Canada can have an FHSA, as long as they haven’t owned a home in the current year or the previous four calendar years. Canadians would be limited to making non-taxable withdrawals for a single property in their lifetime.
The budget said the government is responding to rising housing prices and Canadians who feel locked out of the market. The national average home price reached a record $816,720 in February, up by more than 20% compared with a year earlier, according to the Canadian Real Estate Association.
The government estimated the new FHSA would provide $725 million in support over five years.
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