Canadians have a new incentive to buy a home as of 2023
12 Sep 2022
The Tax-Free First Home Savings Account will be open to any Canadian resident older than 18 and younger than 71 who hasn’t owned a home in the last five years.
Prospective homebuyers may or may not be looking at lower prices next year, but they will have an extra tax incentive to help make it happen.
The target date for launching the Tax-Free First Home Savings Account (FHSA) is “some point in 2023,” according to a draft proposal on the government of Canada’s website, with the tax deduction to be applicable for the 2023 tax year.
Under the program, first announced by the Liberals during the 2021 federal election campaign, contributors would be able to deposit as much as $8,000 per calendar year (to a total of $40,000) in an account intended for a down payment on a principal residence in Canada. The contribution would be tax-deductible, as RRSP contributions are now, but the proceeds (including investment income) won’t be taxed as income when withdrawn if used for a home purchase.
That gives the program an edge over the current Home Buyers’ Plan, which allows Canadians to borrow up to $35,000 from their RRSPs for a down payment. That money must eventually be repaid to the RRSP or declared as income
As with RRSPs, you don’t have to claim the tax deduction for a First Home Savings Account contribution in the year you make it, but unlike RRSPs, you won’t be able to contribute to a spouse’s plan and claim the deduction for yourself.
Pitched initially as an incentive for would-be homebuyers 40 and younger, the new program will in fact be open to any Canadian resident older than 18 and younger than 71 who hasn’t owned a home in the last five years.
The account stops being an FHSA 15 years after being opened, or when the holder turns 71. The proceeds can be transferred to an RRSP or RRIF (Registered Retirement Income Fund) without penalty, but would otherwise be treated as taxable if not used for a home purchase.
