The FHSA: A Path to Your First Home
Housing affordability has been ranked as the number one issue for most Canadians. It seems to be only getting harder for the next generation to become homeowners. The First Home Savings Account (FHSA) was introduced by the government in the 2022 federal budget to try to address this issue; however, many people are still unfamiliar with what it is and how it works. The FHSA is a registered account that provides two key tax advantages to people saving for their first home. Investments in this account can grow and be withdrawn tax-free (similar to the TFSA), and all contributions to the account are tax deductible (similar to the RRSP). Here is a refresher on the rules to open and contribute to an FHSA.
The rules to open an FHSA:
- You must be a Canadian resident.
- You must be between the ages of 18-71.
- You and your spouse/common-law partner have not owned your principal residence at anytime in the last 5 calendar years.
The rules for contributing to an FHSA:
- You can contribute a max. of $8,000 annually, to a max. lifetime contribution of $40,000.
- You can transfer any assets from your RRSP to your FHSA tax-free.
- You can only maintain and contribute to the FHSA for a max. of 15 years.
A potential strategy we suggest to clients wanting to assist their children in buying their first home is to start contributing to the child’s TFSA and FHSA when they turn 18 (or 19 depending on their province). For these clients, we recommend a growth focused approach with a 10-year time horizon. Contributing the yearly maximum to their TFSA and FHSA (assuming a constant $7,000 TFSA limit and an 8% return) would result in, $183,994.89 in 10 years. This is the most tax advantaged way to plan for a down payment and shows the impact tax-free compounded growth can have on a portfolio. As they approach the time of purchase, we recommend modifying the strategy to prepare for the withdrawal.
Everyone’s financial situation is different, and some people may decide against home ownership. In this case the FHSA is flexible as it can be rolled over to an RRSP without tax consequences, effectively adding more room to your RRSP. You can also withdraw from the FHSA for a purpose other than buying a home, but it will be fully taxable.
“This means that” housing affordability will likely always be a concern for Canadians. This is all the more reason to plan for home ownership by utilizing the FHSA. Many people can overlook the benefits of compounded tax-free growth, but we urge clients making this choice to consider it. If you are interested in opening a FHSA or have any further questions, please give us a call at Pathfinder’s Main Telephone line: 604-682-7312.
National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.
Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Conviction Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
Pathfinder Asset Management Limited (PAML) and its affiliates may collectively beneficially own in excess of 10% of one or more classes of the issued and outstanding equity securities mentioned in this newsletter. This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor PAML can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your portfolio manager, who can assess all relevant particulars of any proposed investment or transaction. PAML and the author accept no liability of any kind whatsoever or any damages or losses incurred by you as a result of reliance upon or use of this publication.