A first home savings account(FHSA) is a registered plan allowing you, as a prospective first-time home buyer, to save for your first home tax-free. Like a Registered Retirement Savings Plan (RRSP), contributions would be tax-deductible, and withdrawals to purchase a first home—including from investment income—would be non-taxable, like a Tax-Free Savings Account (TFSA).There is an $8,000 annual contribution limit in addition to a $40,000 lifetime contribution limit. You can open an FHSA starting April 1, 2023.
Who can open an FHSA?
You are qualifying individual if you are at least 18 years old, and a resident of Canada and a first-time home buyer.
1. Who is a First-time home buyer?
You will be considered to be a first-time home buyer if you and your spouse/common-law partner did not live in a qualifying home at any time in the preceding four calendar years as your principal place of residence.
Example: Jane is a Canadian resident who is 34 years old. Jane would like to open an FHSA in June 2023. She currently lives with her common-law partner in a home that he owns. Jane is not considered to be a first-time home buyer because her current principal residence is owner by her partner. As a result, she is not qualifying individual and will not be permitted to open an FHSA.
2. What information to provide to register your FHSA?
l Your SIN
l Your date of birth
l Any supporting documents your issuer may need to certify that you are a qualifying individual
If you do not provide the required information, it is possible that the registration of your FHSA may be revoked.
l Any contributions made to the account will not be tax-deductible
l Any amounts transferred from your RRSPs to the account will be treated as an RRSP withdrawal and must be reported as income on your personal tax return
l Any income earned under the account must be reported on your income tax return.
When to close an FHSA?
Your FHSA account ends in December 31 of the year in which the earliest: the 15th anniversary; you turn 71 years old or your first qualifying withdrawal.
Tax-deferral method
If you have properties in your FHSA, you can transfer the property on a tax-deferred basis into your RRSP/RRIF
Taxable withdrawal
If you withdraw any remaining property as a taxable withdrawal, you must include this amount as income on your personal tax return
FMV approach
If property remains in your accounts after your maximum participants period ends, you must include the FMV of all of the property as income on your income tax return.
Exemption after Death
If a holder dies on April 1 2023, the exempt period could continue until December 31, 2024.
Resource: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/opening-closing-and-fhsa.html#h_3