As house prices have climbed, saving for a down payment has become increasingly out of reach for far too many Canadians, particularly young people. The government's new tax-free First Home Savings Account is now available and will help put homeownership back within reach for Canadians across the country.
The new tax-free First Home Savings Account is a registered savings account that helps Canadians become first-time home buyers by contributing up to $8,000 per year (up to a lifetime limit of $40,000) for their first down payment, within 15 years. To help Canadians reach their savings goals, First Home Savings Account contributions are tax deductible on annual income tax returns, like a Registered Retirement Savings Plan (RRSP). And, like a Tax-Free Savings Account (TFSA), withdrawals to purchase a first home-including any investment income on contributions-are non-taxable. Tax-free in; tax-free out.
As of today, First Home Savings Accounts are available at seven financial institutions, and more are set to offer First Home Savings Accounts soon.
Here is an example of how the First Home Savings Account can help Canadians save for their first down payment and benefit from tax relief:
- Olivia and Amira are looking for a first home in Ontario. They each save the maximum $8,000 per year in their First Home Savings Account, which they can deduct from their income at tax time. They both make between $70,000 and $100,000, which means for every $100 contributed to their First Home Savings Account they receive $20.50 in federal tax savings to each receive an annual federal tax refund of $1,640.
- After five years of saving, Olivia and Amira have a combined $90,000 (including $10,000 in investment returns) that they can withdraw tax-free for a down payment on their first home. Over five years, they will have benefitted from a combined $18,450 in federal tax relief, in addition to nearly $8,000 in provincial tax relief.
- They use their First Home Savings Account as a 10 per cent down payment to qualify for a mortgage and purchase their first home for $900,000.
- When Olivia and Amira file their taxes after buying their first home, they will receive an additional $1,500 in federal tax relief through the First-Time Home Buyers' Tax Credit.
