FHSA? TFSA? RRSP? What will your strategy be?

In the spring of 2022, the federal government announced the creation of a new registered savings plan to help Canadians save for their first home. This new plan, called FHSA, combines the benefits of an RRSP and a TFSA into one plan.

What should you prioritize if you are planning to buy your first property? FHSA , TFSA or RRSP?

THE COMPARISON IN BRIEF

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ELIGIBILITY

To be eligible for FHSA, you must be a resident of Canada, at least 18 years old and you must not have owned a home in the last 5 years. The spouse must also meet all these criteria.

STRATEGIES

RAP and FHSA

It is possible to combine an RRSP (HBP) withdrawal with a withdrawal FHSA. This strategy gives access to up to $75,000 per spouse by combining the plans in this way. Only the HBP must be repaid within 15 years.

Don't worry if you don't buy a property

An individual who has opened a FHSA and has not purchased a property will be able to transfer the FHSA to his or her RRSP after 15 years, even if the RRSP is already maxed out.

REPAY without refunding

It is possible to transfer amounts from an RRSP to FHSA without any tax consequences. However, it is important to respect the maximum contribution limit of $8,000 per year.

Take advantage of deductions as soon as the plan is opened

The HBP requires the individual to leave the newly invested amount in his or her RRSP for a minimum of 90 days before withdrawing it for the purchase of a property. The FHSA does not have this constraint. Someone could deposit an amount in the FHSA, deduct it from his income the same year and withdraw the contribution the next day, without having to pay back the contribution to the plan.

Carry over deductions

A person who currently has a low income but expects to earn more in the next few years should still contribute immediately to FHSA. They can then carry forward their tax deduction to one or more future years when their income is higher.

Contribute as soon as possible

If a person is eligible for the FHSA, it is recommended that they open it before they have a spouse who would not be eligible. An ineligible spouse disqualifies both spouses from opening a FHSA.

CONCLUSION

For the acquisition of a property, the FHSA is by far the most advantageous strategy. The worst case scenario is if the taxpayer does not purchase a property, but even in this case the FHSA remains advantageous (the sums are then transferred to his RRSP).

Withdrawing from an RRSP (HBP) offers the same advantages, but with the important constraint of having to repay the amounts withdrawn over a period of 15 years after the purchase of the property. 

The TFSA, true to form, offers the most flexible way to save and withdraw savings tax-free. But it does not offer a deduction for contributions. 

In summary, please consult your financial planner to ensure that you are taking advantage of FHSA in the best way for your particular situation.

SOURCE

QPFC, Chapter D, Miscellaneous Changes Affecting Individuals, Trusts and Corporations for the Purposes of the Federal Rules, Tax Update for Financial Planners and Investment Advisors 2022, 2022, pp.1-22