Are you or anyone you know (your child, nephew, friend) thinking about buying their first home? In this article, I encourage readers to check out the FHSA.

A survey published last week by Abacus Data, a polling firm, found that 70 per cent of non-homeowning Canadians want to own a home someday. Despite the significant affordability hurdle, many Canadians are leaving free money on the table by not taking advantage of a powerful savings tool: the first home savings account (FHSA).

In 2023, fewer people contributed than were eligible. Among the 5.6 million Canadians aged 25-34, roughly 60 per cent are non-homeowners and eligible to contribute. Yet, only 1.6 million—fewer than three in 10—actually used the FHSA, meaning many Canadians with the dream of home ownership are not taking advantage of this powerful savings vehicle. Those saving for or considering saving for a house can benefit financially by taking advantage of the FHSA.

What is the FHSA?

Think of the FHSA as a combination of an RRSP and a TFSA, like an RRSP. Every dollar you contribute is tax-deductible, meaning you don’t have to pay taxes on it (more accurately, you get it back in your tax refund). Like a TFSA, any interest you earn on the money or capital gains is tax-free.

You must be a resident of Canada, not have owned a home in the past four years, and be under 71 and over 18. If you end up never buying a home, you can roll it into your RRSP. You can invest the money in a whole range of assets. You can open one at any time, and the earlier you open it, the more contribution room you have. There is no minimum timeline to contribute, meaning you can open one and use the money to buy a house in the same year. Theoretically, you could open one up and get the tax deduction on the same day. 

How much money can I get back?

Your actual tax savings will depend on your full tax situation, but this rough estimate, based on an $8,000 annual contribution, was prepared by local financial security adviser Reilly McCann at Vancea Financial Group:

Essentially, say your income is $60,000 per year, the government is paying you $2,372 per year to save for a house. Say you managed to say 40,000 dollars, you would have gotten back around 12 thousand dollars.

How much money do I need for a down payment?

First-time homebuyers need a minimum of five per cent down payment. On a $500,000 home, that is $25,000. Closing costs can add another $5,000 to $10,000. On a $60,000-$90,000 pre-tax income, reinvesting your tax refund into your FHSA can accelerate your savings by nearly 30 per cent, meaning if it would have taken you four years to save for the down payment, you could instead save for it in three years, further importantly avoiding a year of rent. Just another benefit of the FHSA.

Saving for a home is challenging, but an FHSA can make it easier.

January was slow. Not much more to say than that; maybe it was the -1 million-degree weather. You can hear my thoughts in my last newsletter. I will keep you updated on how the spring market shakes out.

Source: OnePoint Association of Realtors.

If you’re curious about buying a home or selling yours, as always, you can email me at [email protected] or text/call me at 519-301-2214.

Sources: Statistics Canada, Realtor.ca and Vancea Financial Group.