The next section of the Action Financial Group Orientation Series will deal with Investment Account Types.
An account is not an investment; it is a container that holds one or more investments. Different containers have different features such as size, shape or colour, one hole in the bottom or none, a lid or no lid; different accounts have different features too, such as tax treatment, size limitations, or rules about contributions and withdrawals. Not all accounts are suitable at different life stages or circumstances and it’s always best to seek advice.
First Home Savings Accounts
FHSA = First Home Savings Account is an account type (introduced in 2023) to accumulate savings primarily for the purchase of a first home. These savings can be invested in short, medium or long term investments. Investments can be cash savings, GICs, mutual funds, stocks, bonds, and other eligible investment vehicles (these are described in other articles).
Contributions are limited to $40,000 lifetime, and $8,000 annually. Amounts contributed to a FHSA are tax deductible, thereby providing income tax savings to the contributor. Any investment growth or income within the plan accumulates tax free. All withdrawals (contributed capital, growth and income) from a FHSA are tax free when they are withdrawn for the purchase of a first home. Over-contributions are penalized at the rate of 1% per month on the excess amount.
You can have more than one FHSA but the total you contribute to all of them cannot exceed the contribution limits noted above.
Individuals must be legal age (18 or 19 depending on your province of residence) in order to legally enter a contract, which includes opening an FHSA account. You cannot be over the age of 71. Also, you must be a resident of Canada and be a first time homebuyer (as per the definition).
The FHSA must be closed by December 31 of the year in which any of the following occur:
- The 15th anniversary of opening your first FHSA
- Your 71st birthday
- The year following your first qualifying withdrawal
The intended purpose of the FHSA is to save and use the funds for the purchase of a first home. If you do not use the FHSA by the withdrawal deadline, you can transfer the account into your RRSP. This transfer may be tax free if you meet certain requirements. Check with an experienced advisor before initiating a withdrawal or transfer.
Definition of first time homebuyer: For the purpose of opening an FHSA, you will be considered to be a first-time home buyer if you did not, at any time in the previous 5 years, including the current year, live in a home that either you owned, or was owned by your spouse or common-law partner.
We hope you will find this information valuable and will increase your financial confidence. You can always find these articles on our website www.actionfinancialgroup.com.
Karin Rimnyak, Certified Financial Planner®
Senior Investment Advisor
David Dryburgh, Certified Financial Planner®
Ian Barrie, Certified Financial Planner®
This information has been prepared by Karin Rimnyak who is an Senior Investment Advisor for iA Private Wealth. Opinions expressed in this email are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth. iA private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.