A tax-free home savings account is a tax-sheltered account recently introduced by the government of Canada.
In this article, we’ll explain what it is, how it works, and who can benefit from opening (and contributing to) an FSHA.
This article is part of our free series on how to open a bank account, which covers bank accounts for all possible scenarios, including when an account has been deemed dormant.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Tax-Free Home Savings Account
- Who Can Open a Tax-Free Home Savings Account in Canada?
- Frequently Asked Questions
- Ready to Explore Your Options?
Tax-Free Home Savings Account
A tax-free home savings account refers to a tax-sheltered account available to Canadian residents that incentivize individuals to save for their first home. The total contribution that an individual can save is $40,000, through annual contributions of $8,000. Importantly, you do not need to be ready to purchase a home because the FHSA can remain active for up to 15 years.
Who Can Open a Tax-Free Home Savings Account in Canada?
Individuals can open a tax-free home savings account in Canada if they are Canadian residents, the age of majority in their province of residence (18 or 19), have a social insurance number (SIN), and be first-time home buyers.
Interestingly, you do not need to be prepared to buy a home anytime soon. Instead, the FHSA can stay active for up to 15 years. So, if you (or your children) are a young person that may buy a home at some point in the future, opening an FHSA is an excellent way to save up to $40,000 tax-free towards that purchase.
Additionally, if you do not contribute to the maximum annual allowance of $8,000, you can carry this available balance forward up to $8,000. So, theoretically, if you did not contribute anything in year one, you could contribute a total of $16,000 in year two.
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Frequently Asked Questions
Below are three of the most common questions that we receive from people looking into opening a tax-free home savings account. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
Can Parents Contribute to an FHSA?
Parents cannot contribute directly to an FHSA. However, the FHSA account holder can receive gifts from their parents and then use the proceeds of that gift to contribute towards their account.
What Is Canada’s New Tax-Free Home Savings Account?
Canada’s new tax-free home savings account refers to a registered tax-sheltered savings account. This account lets Canadians save up to $40,000 tax-free. The purpose of the FHSA is to help Canadians save for purchasing their first home. In addition to savings, FHSA also allows account holders to invest in a wide variety of investment products.
What Is the Difference Between FHSA and TSFA?
The main difference between an FHSA and a TFSA is that contributions to an FHSA are tax deductible while contributions to a TFSA are not. Additionally, an FHSA is only available to first-time home buyers while a TFSA is available to anyone.
Ready to Explore Your Options?
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But, if you want a 100% personalized account opening service, consider GlobalBanks Insider. Insider taps into our team’s expertise and provides direct banker introductions, you can get started with GlobalBanks Insider.
Of course, if you have any questions, please contact us directly.
