First Home Savings Account
This newly released federal budget proposes a new registered savings vehicle for eligible first-time homeowners: the Tax-Free First Home Savings Account (FHSA). The FHSA will give first-time home buyers the ability to save up to $40,000. This account will be unique in that contributions will be tax-deductible—similar to a registered retirement savings plan (RRSP)—but qualifying withdrawals (including investment earnings) will be non-taxable—similar to a tax-free savings account (TFSA). Amounts are withdrawn to make a qualifying first home purchase, and they won’t be subject to tax; however, amounts that are withdrawn for any other purpose will be taxable.
To open an FHSA, the account holder must be a Canadian resident over the age of 18 years. As well, they can’t have lived in a home that they owned either at any time in the year the account is opened or during the preceding four calendar years. There’ll be a $40,000 lifetime limit on contributions with an annual contribution limit of $8,000, which can’t be carried forward to subsequent years.
Unused FHSA funds could be transferred to an RRSP, or to a registered retirement income fund (RRIF), if applicable. These transfers won’t reduce RRSP contribution room and won’t be taxable at the time of transfer, but when funds are withdrawn, they’ll be taxable as income like normal RRSP or RRIF withdrawals. As well, transfers from an RRSP to an FHSA can be made on a tax-free basis (subject to the $40,000 lifetime and $8,000 annual contribution limits). These transfers won’t restore an individual’s RRSP contribution room.
Since this is a first home savings account, the non-taxable withdrawals must be for a single property during the FHSA holder’s lifetime. Once the first non-taxable withdrawal has been made, the FHSA must be closed within a year and another FHSA can’t be opened. Further details are to come with contributions starting in 2023!
Thankfully, the home buyers’ plan (HBP), which allows individuals to withdraw up to $35,000 tax-free from an RRSP to purchase or build a home, will continue to be available. However, an individual will not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.
First-Time Home Buyer’s Tax Credit
For qualifying homes purchased on or after January 1, 2022, the First-Time Home Buyer’s Tax Credit (HBTC) is proposed to double—up to $10,000. The increased credit would provide up to $1,500 in direct support to first-time home buyers. Spouses or common-law partners can split the value of the credit as long as the combined total doesn’t exceed $1,500 in tax relief. The HBTC eligibility requirements remain the same.
Other Housing Tax Credits
The budget proposes a new refundable tax credit: the Multigenerational Home Renovation Tax Credit, which will provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability (so they may live with a qualifying relation). Starting in 2023, this refundable credit would allow families to claim 15% of up to $50,000 in eligible renovation and construction costs incurred to construct a secondary suite.
Lastly, the Home Accessibility Tax Credit is a non-refundable tax credit that provides recognition of eligible home renovations for an eligible dwelling of a qualifying individual. The value of the credit is 15% of the lesser of eligible expenses and $10,000. Budget 2022 proposes to increase the annual expense limit of this tax credit to $20,000. This measure would apply to expenses incurred in 2022 and subsequent taxation years.
Source: Manulife Investments April 7 2022
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