Genus Partner Mary Lou Miles knows that purchasing a home can be a stressful experience.
“Your home is probably the most expensive purchase you’ll ever make,” she points out. “You want to pick the right place, but you’re dealing with realtors and a home inspection while weighing decisions on nearby schools, transit and shopping.” It’s a lot to consider – especially if it’s your first time. And in this market, it’s a decision that often needs to be made in a compressed time frame.
Whether you’re a first-time homebuyer yourself, or a parent or grandparent looking for ways to help adult children make this big leap a little easier, there’s a new financial savings vehicle available to help. Earlier this year, the Government of Canada announced the new First Home Savings Account¹ (FHSA), a registered account that allows first-time homebuyers to save for their first home tax-free.
Anyone between the ages of 18 and 71 (though in certain provinces the legal age for opening an FHSA is 19), who is a resident of Canada and a first-time homebuyer can open an account. In the first year, account holders can contribute $8,000, and the account has a lifetime limit of $40,000. Contributions to the account can be made on a calendar-year basis, and unused contribution room can be used in the following year to a maximum of $8,000. Capital gains from the account are tax-free and so are withdrawals (if they go toward that first home purchase). Withdrawals also don’t need to be paid back, which differs from the way the Home Buyers’ Plan handles RRSP withdrawals.
First Home Savings Accounts must be closed 15 years after opening, when the account holder turns 71 years old, or the year following the first qualifying withdrawal from it. It also offers the option to transfer funds to the account from an RRSP, or vice versa². Miles sees all these investment opportunities as an incredible gift. “There’s definitely more to-dos than not-to-dos,” she says.
While only the First Home Savings Account holder can contribute directly to the account and claim the tax deduction, supporting family members through contributions that can be made by them to their FHSA is a great opportunity to ensure your children or grandchildren are taken care of, too.
How you can make the most of a First Home Savings Account
Opening a FHSA with your wealth manager means that your investments can be tailored to your portfolio and sustainable investing preferences³. You can choose to invest your funds in values-aligned portfolios⁴ and make impact investing a priority.
Miles offers some recommendations for those wishing to work with a wealth manager on a First Home Savings Account. “We like to make it as easy as possible for all of our clients,” she says. “We would set up automatic contributions. If you open the First Home Savings Account this year, in January next year we would invest the full $8,000. We would do so every year for the next four years. We track that for our clients to make sure their investment has the most potential.”
An opportunity to help your family members become homebuyers
The First Home Savings Account is an opportunity for parents or grandparents to give the next generation a leg up. Miles offers some words of wisdom for those who wish to give money to their families for the purpose of opening an account. She urges those who pass along funds to open an account to consider that money a gift, not a loan, citing that the CRA sees it as such, so you may run into tax issues should you classify it as a loan. She also cautions against borrowing money to open a First Home Savings Account due to the high interest rates we’re currently experiencing.
With this said, and with the help of a wealth manager, the First Home Savings Account is a unique opportunity. “There’s the possibility that you’re going to get some growth from it,” Miles says of FHSA contributions. “You’ll have those gains tax-free and your family will have a leg up when they decide to make that big first purchase.”
Interested in setting up an FHSA for yourself or a family member? Watch our webinar on demand: Unlocking A Path to Homeownership: First Home Savings Account (FHSA).
References
Agency, C.R. (2023) Government of Canada, Canada.ca. Available at: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html (Accessed: 12 October 2023).
Agency, C.R. (2023) Government of Canada, Canada.ca. Available at: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html (Accessed: 12 October 2023).
(2022) Where am I on the impact investing spectrum?, Genus. Available at: https://genuscap.com/where-am-i-on-the-impact-investing-spectrum/ (Accessed: 12 October 2023).
- (2022) What should I ask my portfolio manager about values-aligned investing?, Genus. Available at: https://genuscap.com/what-should-i-ask-my-portfolio-manager-about-values-aligned-investing/ (Accessed: 12 October 2023).
