Strategies for Utilizing the New Tax-free First Home Savings Account
Do you want to learn how to maximize the benefits of the Tax-Free First Home Savings Account (FHSA)? With tax season currently underway, it's a perfect time to explore some strategies that could help you make the most of the FHSA.
One effective approach is to consider contributing to an FHSA, even if you're uncertain about purchasing a house in the near future. The FHSA is specifically designed for first-time homebuyers aged 18 or older who reside in Canada. To qualify, you must not have owned a primary residence at any time during the year you open the account or the preceding four years. The FHSA has a lifetime contribution limit of $40,000, with an annual contribution limit of $8,000. Any unused contribution room can be carried forward to future years. Like an RRSP, the money you invest in an FHSA is tax-deductible, and if you purchase or build a home, the withdrawal is tax-free. However, if you decide not to buy a house, you can roll over the money to your RRSP without impacting your RRSP contribution room.
The second strategy involves gifting money to your spouse or adult children so they can contribute to their own FHSA. Although you can't have a joint FHSA or make spousal contributions, you can gift money to your adult children to contribute to their own FHSA. Additionally, if a couple is saving for a home, both partners can open their own FHSA, and they can withdraw money from both accounts to purchase a home jointly. If one partner earns more, they can gift money to their partner, who can contribute to their FHSA. The spousal attribution rules regarding investing and gifting between spouses do not apply to the FHSA, so it's a valuable opportunity to consider.
The third strategy is to defer the tax deduction. If you're in the early stages of your career and have a lower income, the tax deduction from an FHSA contribution may not result in significant tax savings. You can contribute the money now and carry forward the deduction to use in a future year when your income is higher, resulting in more significant tax savings. Lastly, investing appropriately in an FHSA is crucial. Although it can hold the same investments as an RRSP or a TFSA, saving for a house requires a different approach than saving for retirement. Ensure your portfolio is aligned with your goals and time frame. Your financial advisors can review your plan and help you maximize the benefits of Canada's new tax-free first-home savings account.
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The comments and opinions expressed in this article are solely the work of Clinton Orr, not an official publication of CG Corp., and may differ from the opinion of CG Corp’s. Research Department. Accordingly, they should not be considered as representative of CG Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this article, is for general information only, does not constitute legal or tax advice, and the author Clinton Orr does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or CG Corp. assume any liability.
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