Posted on Tuesday November 26, 2024

10 tips for maximizing your FHSA 

The tax-free First Home Savings Account (FHSA) is a powerful tool for those who dream of owning their own home. To get the most out of it, it is crucial to know how to optimize your contributions. That is why we have put together 10 practical tips to help you successfully contribute to the FHSA and move closer to your real estate goal.   

1. Check that you are eligible to open a FHSA account

Designed to help first-time homebuyers save, the FHSA is not available to everyone. You must be a Canadian resident and at least 19 years of age, but no older than 71. In addition, you must not have lived in a home that you or your spouse owned in the year the FHSA was opened, or in the four previous calendar years.  

2. Understanding how the FHSA works

If you meet the eligibility criteria, you are in luck! The FHSA allows you to deduct contributions from your annual taxable income, thus obtaining a tax refund. You can then withdraw the money tax-free, as long as the withdrawal is used to purchase your home. It will have grown tax-free for a few months or years. 

     3. Open your account this year and keep an eye on your notices of assessments

Even if you do not plan on contributing to a FHSA this year, do not hesitate to open your account now. The reason is simple: to accumulate contribution room, the account must be open. The lifetime contribution limit is $40,000, or $8,000 per year for five years. By opening your account in advance, you will have the right to go back one year in order to contribute $16,000 all at once next year. It is not possible to go back more than one year in order to contribute more.  

To find out how much you can claim as a deduction, keep an eye on your notice of assessment. It is sent by the government after your annual income tax return. The total of your unused FHSA contributions will be shown on this document. 

4. Contribute to your RRSP and put the tax refund in your FHSA.

Receiving money is always nice! Especially when you have worked hard all year. You can combine several savings plans to maximize your earnings. For example, in February, contribute to your Registered Retirement Savings Plan (RRSP) for the calendar year that ended in December. Then, with your tax refund, contribute to your FHSA. When you file your next income tax return, this FHSA contribution will entitle you to a new tax deduction. 

     5. Transfer funds from your RRSP to a FHSA

In some cases, it may be advantageous to transfer funds from your RRSP to a FHSA. Don't have any savings this year, but have contributed a lot to your RRSP in the past? This strategy may be of interest to you. Transferring money from an RRSP to a FHSA offers a considerable advantage: since you will be making your withdrawal directly from the FHSA, you will never have to pay the money back, unlike with an RRSP.  

6. Meet with an Aviso Wealth Investment Advisor

The rules surrounding opening a FHSA account, contributions and withdrawals are complex. Get help from an Aviso Wealth Investment Advisor at UNI. These professionals will guide you and answer all your questions. A wise decision that could help you achieve your dream of home ownership sooner! 

7. Select investments* according to your time horizon

A FHSA can stay open for 15 years, so there is no rush. A person who has several years before using his or her FHSA will not invest in the same way as someone who wants to withdraw the money next year. The former could afford more volatile investments with higher return potential, while the latter would opt for a safer strategy, such as Guaranteed Investment Certificates (GICs). 

    8. Schedule automatic transfers

Sometimes you want to save, but you are tempted by a new gadget. To avoid impulse purchases that undermine your ability to save, set up automatic transfers from your chequing account to your FHSA. These regular contributions also have the advantage of allowing you to benefit from the ups and downs of the stock market. 

9. Carry your tax deduction forward

You can contribute to your account without claiming the tax deduction right away if you expect to earn more income in future years. For example, if you are a student contributing to a FHSA this year, carry forward the deduction to keep your unused contributions. Next year, if you earn a higher salary and continue to save, you will be able to claim the deduction for both years combined, making for a very attractive tax refund! 

10. Use the Government of Canada’s estimator tool

The federal government recently launched a simulator to help you understand the impact of your contributions and better plan your use of the FHSA. By answering a few simple questions, you can find out how much you can reasonably expect to have on hand when you buy your first home. For example, if you plan to buy in three years with contributions of $8,000 a year, at a net rate of return of 4%, you will have a potential sum of $25,971 at term. As for tax deductions, on a $50,000 salary, the calculator says you could save up to $3,600 in federal taxes and $2,256 in New Brunswick taxes over the three years. 

By following these 10 tips for your FHSA account, you will not only take full advantage of the tax and financial benefits offered by this account, but also save efficiently and strategically for the purchase of your first home. Don't forget to consult a financial advisor to personalize your approach and take advantage of investments tailored to your situation. Each well-planned step will bring you a little closer to your dream! 

*Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. Unless otherwise indicated, mutual funds, other securities and cash balances are not insured by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions. 

The information contained in this article has been obtained from sources believed to be reliable. However, we cannot guarantee its accuracy or completeness. This document is provided for educational and informational purposes only and is not intended to provide specific financial, tax, investment or other advice.