Today, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, announced that over 250,000 Canadians have now opened a Tax-Free First Home Savings Account to save for a down payment on their first home-putting homeownership back within reach across the country. The Tax-Free First Home Savings Account is a key tool to make homeownership more affordable and is part of the federal government's comprehensive plan to make housing more affordable and build more homes, faster.
The new Tax-Free First Home Savings Account is a registered savings account that allows Canadians to contribute up to $8,000 per year (up to a lifetime limit of $40,000) for their first down payment. To help Canadians reach their savings goals, Tax-Free 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.
The Tax-Free First Home Savings Account is a powerful financial tool that supports generational fairness by putting the homeownership opportunities that have been available to generations of Canadians back within reach of young Canadians today.
To maximize 2023 tax return deductions, Tax-Free First Home Savings Account contributions must be made by December 31, 2023. Contributions can also be carried forward to be deducted in future tax years.
As of today, Tax-Free First Home Savings Accounts are available at over twenty financial institutions, and more institutions are continuing their work towards launching Tax-Free First Home Savings Accounts soon.
Here is an example of how the Tax-Free 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 Tax-Free 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 Tax-Free First Home Savings Account they receive $20.50 in federal tax savings. They 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 Tax-Free 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.
