The Canadian housing market is challenging for many, particularly first-time homebuyers who confront increasing costs and onerous financing requirements. The Canadian government launched the First Home Savings Account (FHSA) to address these issues in 2023. This unique registered savings plan provides significant tax benefits, making homeownership more affordable to Canadians entering the property market for the first time. The FHSA program combines the advantages of an RRSP and a TFSA, allowing for tax deductions and tax-free investment growth. According to the Canada Revenue Agency (CRA), the program is designed to help those aged 18 to 71 who have never owned a home or have not owned one in the preceding four calendar years.

First Home Savings Account Details:

• Eligible members can contribute up to $8,000 annually, with a lifetime contribution cap of $40,000 per individual.
• These contributions are tax-deductible, reducing the contributor’s taxable income for the year, but they also qualify for a 25% government match, up to a maximum of $10,000 during the account’s lifetime.
• Contributions exceeding annual restrictions are permitted using the carry-forward allowance, providing flexibility for users who may miss a year or want to optimize their contributions later. Given the average Canadian home price of $716,000 as of late 2023, the FHSA can play an essential role in assisting potential purchasers to collect a sizable down payment more quickly. 
• As the FHSA program evolves, policymakers and financial institutions will closely examine its impact on first-time homebuyers. They intend to fine-tune this approach so Canadians can own their first homes better. This account is especially beneficial for young Canadians who are just starting their careers and intend to plan a house.

Types of FHSAs:

• Depositary FHSAs often include accounts that store liquid assets such as cash or guaranteed investment certificates (GICs).
• Trusted FHSA: A trusted business manages the account, which can include various qualifying investments such as bonds and mutual funds.
• Insured FHSAs operate under an annuity contract with a licensed provider, concentrating on insured products.

Eligibility requirements for the First Home Savings Account (FHSA)

• Eligible individuals must be aged 18 to 71. In provinces where this is the legal age for entering into contracts, the age restriction is reduced to 19.
• Residency: Applicants must be present Canadian residents to use the FHSA’s benefits in the Canadian housing market.
• Individuals must not have owned a primary property within the last four years to qualify for first-time home buyer status. This applies to properties owned solely or jointly with a spouse or common-law partner.
• Applicants should not have a spouse or common-law partner who already owns a home unless they separately qualify for first-time home purchase status.

Steps for Opening an FHSA in Canada:

• Check your eligibility for the FHSA before beginning the application process.
• Choose an FHSA-accepting financial institution, such as a bank, credit union, trust business, or insurance provider.
• Examine the services, fees, and investment alternatives various issuers offer to determine which suits your financial objectives.
• Collect all required documents, including your Social Insurance Number (SIN) and verification of your date of birth.
• To verify your eligibility, provide the relevant information and any additional papers your chosen issuer asks.
• To formally open your FHSA, follow the instructions provided by the issuer.
• You can designate a beneficiary to receive the account balance in the event of your death, ensuring your savings are transferred according to your instructions.
• To maximize your savings potential, contribute to your FHSA up to $8,000 per year.
• Use Schedule 15 to disclose your FHSA donations and activities on your income tax return, even if you did not contribute that year.
• Set up a self-directed FHSA if you choose to manage your assets yourself.
• To optimize growth and savings, assess and alter your investment strategy regularly.