The FHSA: A Powerful Tool for First-Time Home Buyers
Planiprêt
Mar 13, 2025
The First Home Savings Account (FHSA) is a tax-advantaged savings plan for future homeowners. It combines the benefits of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA), allowing you to accumulate funds for the purchase of your first home while enjoying tax reductions.
Benefits of the FHSA
- Tax Deductions: Contributions to the FHSA are tax-deductible, reducing your taxable income.
- Tax-Free Growth: Funds invested in the FHSA grow tax-free.
- Tax-Free Withdrawals: Withdrawals made for the purchase of an eligible first home are not taxable.
Concrete Example
Let's take the example of Rose, a 30-year-old resident of Quebec, who wants to buy her first home. Rose has an annual salary of $60,000 and decides to contribute the maximum annual amount of $8,000 to her FHSA.
Year 1
- Contribution: $8,000
- Tax Reduction: $2,000 (assuming a marginal tax rate of 25%)
- Amount accumulated in the FHSA (with an annual return of 5%): $8,400
Year 2
- Contribution: $8,000
- Tax Reduction: $2,000
- Amount accumulated in the FHSA: $17,220
Year 3
- Contribution: $8,000
- Tax Reduction: $2,000
- Amount accumulated in the FHSA: $26,481
After five years, Rose will have contributed $40,000 and accumulated approximately $46,415 in her FHSA, while benefiting from total tax reductions of $10,000.
The FHSA is an excellent tool for first-time home buyers, offering significant tax advantages and allowing you to build a down payment more quickly. If you are considering buying your first home, the FHSA could be a serious option to consider.
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