Nearly one million Canadians have opened Tax-Free First Home Savings Accounts (FHSA), designed to help first-time homebuyers save for their down payment, all while enjoying tax-free benefits. Could this be a major push to make homeownership more accessible.
The Honourable Chrystia Freeland, Canada’s Deputy Prime Minister and Minister of Finance, shared her enthusiasm for the uptake of the FHSA program: “ “Our government’s housing plan is the most ambitious housing plan in Canada’s history—it is a plan to build 4 million new homes. Today, nearly 1 million Canadians—or about 1 in 40 Canadians—are one step closer to having the downpayment needed to buy that first home, with the help of our Tax Free First Home Savings Account. We’re doing everything we can to put homeownership back within reach for every generation of Canadians.”
What is the Tax-Free First Home Savings Account (FHSA)?
The FHSA is a government initiative that allows first-time homebuyers to save up to $8,000 per year, tax-free, with a lifetime contribution limit of $40,000. Contributions reduce taxable income, while any earnings or withdrawals used for a first home are tax-exempt, helping Canadians build savings faster for their down payments.
How Does FHSA Work? A Real-World Example
Take Olivia and Amira, two young Canadians saving for their first home in Ontario. Each of them contributes the annual maximum of $8,000 to their FHSAs, which lowers their taxable income at tax time. Because they each earn between $70,000 and $100,000, they receive about $1,640 in federal tax savings each year.
After five years, with their contributions and investment returns, they have a combined $90,000 saved—tax-free—for their down payment. This savings, bolstered by over $18,000 in federal tax relief and nearly $8,000 in provincial tax relief, helps Olivia and Amira make a 15% down payment on a $600,000 home.
Even better, after they purchase their home, they qualify for an additional $1,500 in federal tax relief through the First-Time Home Buyers’ Tax Credit.
According to the honourable minister, the Tax-Free First Home Savings Account is just one part of its effort in helping Canadians move closer to the dream of owning a home without the financial barriers that have kept homeownership out of reach for many.
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