InsightsUnlocking Homeownership with the FHSA & RRSP – HBP
October 31, 2023 • 3 MIN READ
The dream of owning a home in 2023 may feel distant for many Canadians, but there are strategic solutions and investment vehicles designed to pave the way for potential homebuyers. Let’s delve into two powerful tools— the First Home Savings Account (FHSA) and the RRSP Home Buyers’ Plan (HBP)— that could be the key to turning your homeownership aspirations into reality.
First Home Savings Account (FHSA)
Introduced by the Canadian government in 2022, the FHSA offers an avenue for first-time homebuyers to save with tax advantages. Understanding its features is essential to maximizing its benefits.
What’s the Buzz About?
The FHSA allows first-time homebuyers to contribute up to $8,000 annually, with a lifetime limit of $40,000, on a tax-free basis. Similar to an RRSP, contributions are tax-deductible, reducing taxable income for the current year. Withdrawals for a home purchase, including any investment income or appreciation, are non-taxable.
Rules and Eligibility
Eligibility requires residency in Canada, an age between 18 and 71, and first-time homebuyer status. Contribution room accumulates from the account’s opening, with the ability to carry forward unused room. The account can stay open for a maximum of 15 years, and if a home isn’t purchased within that timeframe, funds can be transferred to an RRSP or RRIF without tax consequences or affecting contribution room.
Like a TFSA and RRSP, the FHSA opens the door to the investment world for young adults, encouraging them to save and invest for their future. These plans are eligible for a diverse array of investments, including public securities, mutual funds, and segregated funds.
RRSP Home Buyers’ Plan (HBP)
The RRSP Home Buyer’s Plan is another financial tool geared towards helping first-time homebuyers. It also allows you to withdraw funds from your RRSP to finance the purchase of your first home.
So, what’s the difference? FHSA vs. HBP:
| FHSA | RRSP – HBP |
| Eligible capital withdrawal does not need to be paid back | Repayment required |
| No withdrawal limit | Withdrawal limit $60,000 as of April 16, 2024 |
| Annual contribution limit $8,000 and lifetime limit is $40,000 | Maximum annual RRSP contribution, i.e., 18% of your earned income in the previous year or the annual contribution limit for the current year |
| No minimum period before contributions are deductible, and can be withdrawn | The money must be deposited in your RRSP 90 days before it can be withdrawn and placed in the HBP |
| The FHSA contribution deadline is December 31st of each year | The RRSP contribution deadline is 60 calendar days after the end of the year |
Making the Choice:
Choosing between the First Home Savings Account and the RRSP HBP depends on your financial goals, timeline, and personal situation. Some individuals may opt for a combination of both to maximize their savings.
Remember, while these tools provide valuable financial assistance to reaching your goals, it’s crucial to consult with a financial advisor to determine the best strategy based on your unique circumstances.
Your path to homeownership is a significant journey. With careful planning and the right financial tools and products, you can confidently step into your first home.
At Verus Financial, we’re here to guide you on this exciting adventure. Contact us today to learn more.
