March 6, 2023

Are you a first-time home buyer?

Average home prices across Canada have increased significantly over the last few years with average home prices in Calgary currently at $511,944, Vancouver at $1,163,092, Montreal at $529,020, Edmonton at $370,068 and Toronto at $1,038,668. Calgary continues to be the most expensive housing market in Alberta however, when compared to other major cities in Canada like Vancouver and Toronto, Calgary home prices are significantly cheaper.  

Purchasing a home in one of Canada’s major cities has become extremely challenging especially for first time home buyers. A 5% down payment on a $500,000 home would require a $25,000 deposit not including any realtor fees, inspection fees, legal fees, insurance fees or sales tax.  Considering the challenges for first time home buyers, the Government of Canada has created a new investment account to make it somewhat easier. 

The account is called a Tax-Free First Home Savings Account (FHSA) – and yes, it is a mouth full! This new registered plan will combine the pre-tax contribution benefits of an RRSP account with the tax-free growth of a TFSA account for those planning on purchasing a home for the first time. Like an RRSP account, contributions will be tax deductible and withdrawals, like a TFSA account will be non-taxable (investments grow tax free). The account will allow first time homebuyers to save up to $40,000 as individuals accumulate room ($8,000/year).  

An individual is permitted to carry forward unused contribution limits from previous years however carry-forward amounts only start accumulating after an individual opens an FSHA for the first time. For example: If an individual wanted to purchase a home in 2025, however did not open an account until 2025, they would only have $8,000 worth of room. If the individual were to open the account in 2023 leaving it empty, they would have $24,000 of contribution room in 2025 ($8,000 of contribution from 2023, $8,000 for 2024 and $8,000 for 2025).  Individuals would be responsible for ensuring they do not exceed their limit each year otherwise a 1% penalty will be charged each month for any overcontributions.   

To qualify, individuals must be a resident of Canada, at least 18 years of age and must be a first-time home buyer. To withdraw the funds a taxpayer must have a written agreement to buy or build a qualifying home October 1st of the following year of the withdrawal and intend to fully occupy the building within 1 year of buying or building it. Additionally, the home must be in Canada.  

What happens if you don’t end up purchasing a house? Any savings not used to purchase a qualifying home could be transferred on a tax-free basis into an RRSP or RRIF or would otherwise have to be withdrawn on a taxable basis. If an individual ends up transferring the funds to an RRSP from a FHSA, these transfers will not reduce or impact an individual’s available RRSP contribution room. Note that these transfers would not reinstate an individual’s FSHA lifetime contribution limit.  

The Home Buyers Program would continue to be available as under existing rules. However, an individual would not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase. 

About Northfront Financial

Northfront Financial, based in Calgary, Alberta is a boutique full-service financial planning firm serving professionals and business owners. We pride ourselves on being a different kind of investment firm. This stems from our humble roots, entrepreneurial spirit, and a culture of integrity and professionalism. Our goal is to offer the best investment products, services, advice, and ideas the financial industry has to offer from our experienced team, which includes individuals with the Chartered Financial Analyst® (CFA®), Chartered Investment Manager (CIM®), and Certified Financial Planner™ (CFP™) designations.



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