As house prices have climbed, saving for a down payment has become increasingly out of reach for far too many Canadians, particularly young people. Our new tax-free First Home Savings Account (FHSA) will help put homeownership back within reach for Canadians across the country.
The FHSA is a registered savings account that helps Canadians save up for their first home through yearly contributions of up to $8,000 (up to a lifetime limit of $40,000). Contributions to your FHSA are tax deductible on annual income tax returns.
Here is an example on how the FHSA can help Canadians save for their first down payment and benefit from tax relief:
- Olivia and Amira are looking for a first home in Ontario. They each save the maximum $8,000 per year in their First Home Savings Account, which they can deduct from their income at tax time. They both make between $70,000 and $100,000, which means for every $100 contributed to their First Home Savings Account they receive $20.50 in federal tax savings to each receive an annual federal tax refund of $1,640.
- After five years of saving, Olivia and Amira have a combined $90,000 (including $10,000 in investment returns) that they can withdraw tax-free for a down payment on their first home. Over five years, they will have benefitted from a combined $18,450 in federal tax relief, in addition to nearly $8,000 in provincial tax relief.
- They use their First Home Savings Account as a 10 per cent down payment to qualify for a mortgage and purchase their first home for $900,000.
- When Olivia and Amira file their taxes after buying their first home, they will receive an additional $1,500 in federal tax relief through the First-Time Home Buyers’ Tax Credit.
FHSAs are available at seven Canadian financial institutions, with more set to offer the savings account soon. Contact your bank or local financial institution to learn more and find out when you can open a FHSA.
Our government is committed to supporting first-time home buyers and making it more accessible and affordable for young Canadians to enter the housing market.