What is the FHSA and how can it be utilized?

Lachlan Macaulay | Associate, Client Services

With soaring housing costs in Canada’s major cities and housing prices rising roughly 88% in the past decade, the prospect of you or your children being able to buy a home may seem daunting. The government has recognized this and implemented the First-time Home Savings Account (FHSA) to try to address this issue. The FHSA has two key advantages. Investments can grow and be withdrawn tax-free (similar to a TFSA) if the funds are being put towards the purchase of a home. At the same time, contributions are tax-deductible, meaning all contributions to the FHSA can be claimed on your taxes to reduce your taxable income (similar to a RRSP).

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 keep open and contribute to the FHSA for a max of 15 years.

A potential strategy for clients who want to help their children buy their first home is to start contributing to both the child’s TFSA and FHSA when they turn 18. For this demographic, we would suggest a risk tolerant approach for the first 10 years to build up the growth in their accounts. With a max contribution each year to their TFSA and FHSA, and assuming a constant TFSA limit of $6,500 a year and an 8% return with our growth focused approach, they would have $176,172.13 for a down payment after 10 years. This would still allow them a 5-year time period to look at the housing market and decide where and when they want to step in. During this time, we would transition to a more conservative approach, holding a higher amount of fixed income so that market volatility would have minimal impact on the savings accumulated for this purchase.

This strategy may not be for everyone. Some people may change their mind on owning a home and want the flexibility of renting. In this case, the FHSA assets can be transferred over to an RRSP or RRIF at any time without tax consequences and the TFSA can be kept as an investment vehicle. Alternatively, the FHSA funds could be withdrawn for another purpose; however, this would be taxed at the marginal tax rate.

“This means that” Changes in the housing market are not something we can control, but we can manage how we plan for this major purchase. The FHSA gives us a helpful tool by offering an investment account with tax-free gains and withdrawals and tax-deductible contributions. If you are interested in opening a FHSA or have any further questions please give us a call, Pathfinder Main Telephone Number: 604-682-7312.

Pathfinder Asset Management Ltd. | Equally Invested™
1450-1066 W. Hastings Street, Vancouver, BC V6E 3X1
E info@paml.ca | T 604 682 7312 | www.paml.ca
Sources: Pathfinder Asset Management Limited

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 Real 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.