Great news for first-time home buyers! The government has announced a brand new tax-free savings account to help you save a down payment to buy your first home.
A first home savings account (FHSA), is a registered plan that enables first-time buyers to save for their first home tax-free, subject to certain limits. Starting April 1, 2023, individuals can open an FHSA and take advantage of the new policy that allows for tax-free savings of up to $40,000. The FHSA also comes with an annual maximum contribution limit of $8,000.

The earlier you start saving, the more time your money has to grow tax-free. Even small contributions can add up over time, so start contributing to your tax-free home savings account as soon as possible.

How does a tax-free first home savings account work?

A tax-free first home savings account is a type of savings account that is specifically designed to help individuals save for the down payment and closing costs associated with purchasing a home. The account is similar to a traditional savings account, but the interest earned on the account balance is tax-free, which can result in significant savings over time.

It operates similarly to a Registered Retirement Savings Plan (RRSP) in that it allows for tax-deductible contributions. Each dollar contributed to the account (up to the specified limit) reduces your earned income for that year, resulting in lower income tax. This feature is especially advantageous for those currently in a high tax bracket, as it can significantly reduce the amount of taxes paid throughout the year. Since the growth of the account is not subject to taxes, you do not have to pay taxes on any interests, dividends, or capital gains earned on your investments.

How to determine if you qualify for a FHSA?

To qualify for a Tax-Free First Home Savings Account in Canada, you must meet the following eligibility criteria:

• You must have a valid social insurance number and be a resident of Canada for tax purposes.
• You must be at least 18 years old to open a FHSA.
• You must have a Canadian bank account in order to open and manage a FHSA.

Working with a financial advisor, like myself, Darren Robinson can help ease the process of getting your account set up with a plan to achieve your financial goals.

Remember to maximize your contributions if possible.

The maximum annual contribution to a FHSA is set by the government and can change each year. With the FHSA, you can save up to $40,000, with an annual maximum contribution limit of $8,000. Now, although that doesn’t add up to a 20% down payment on a million-dollar home, it can still significantly help you save up without getting taxed on your hard-earned money. You can save more than that in your RRSPs or your TFSA as alternative savings strategies.

How much will you need for a down payment?

Determining how much money you will need for your down payment and other expenses related to purchasing a home will be your first step after setting up your account. Step two is setting a savings goal and determining how much you need to contribute to your tax-free home savings account each month to be able to accumulate the amount needed for your down payment. When you regularly monitor your account balance and track your progress towards your savings goal you’ll be more mindful of your spending. This can help you stay motivated and make adjustments to your savings plan as needed. You still might have incidental costs pop up in life, so also having a rainy day fund in your financial plan is smart too.

And remember, budget, budget, BUDGET!

Use the savings for your down payment. DON’T dip into it.

Overall, a tax-free home savings account is a powerful tool for individuals looking to save money for their first home. By taking advantage of the tax benefits and incentives, you can maximize your savings and achieve your goal of homeownership more quickly. Buying your first home in Ontario IS possible.

Before you rush into setting up an account to take advantage of this new offer, it’s important to consider if it’s the right choice for you. Consulting a trustworthy financial advisor, such as myself, can help you make an informed decision. Let me teach you what options are available to you, and what the benefits are in relation to your finances specifically. I can assist you in creating a tailored plan to save for your first home while also helping you secure a mortgage that fits your needs, and ultimately obtaining the keys to your dream house. Whether you prefer to give me a call at 705-315-0516 or sign up for a free consultation, I’m ready to guide you every step of the way. Let’s get started today.