We’re leaving the insurance space today for a bit of a PSA. We want to talk about the FHSA – the First Home Savings Account.
TL;DR if you think you might want to purchase property for the first time in Canada in the next five years, you should be having a conversation with your financial advisor about opening an FHSA and contributing the maximum ($8,000) this year.
The Details
First, let’s talk about what an FHSA is. The government introduced this program in 2023 to incentivize Canadians to save for a down payment for their first home. You can contribute $8,000 a year for five years (up to $40,000). There are two key features of the FHSA that really matter. They both have to do with taxes:
- The money in the account grows tax-free. When you buy an asset like a stock and you sell it, you pay taxes on the difference. That means if you buy $1,000 worth of Shopify and you sell it a year later for $2,000. You have to pay taxes on what you made. For most people that’s going to be ~$250. In an FHSA, you’ll never pay that sum. If we scale this to the full $40,000, you could be saving a lot of money on tax.
- The income tax deduction. You probably know that when you contribute to an RRSP, you get a tax refund. The downside of an RRSP is that you cannot access the funds in the account until you retire (For the most part). With an FHSA, you get the refund in the year you contribute, and that money is accessible in the short term (As long as you are using it to purchase a home). If your marginal tax rate is 50% and you contribute the full $8,000, you could grab a $4,000 refund in the year you make the contribution. That’s way more money going towards your down payment growing tax free (Feature 1) to get you that first home.
Practically Speaking
If you are trying to get on the real estate ladder, this is such an important item. If you are indeed still on the real estate sidelines, you likely feel like you’ve been priced out. Part of the reason you’ve been priced out is because other people can spend more money on property. This account is especially important because if you don’t have it, people that do have it will be getting even further ahead of you.
We put a lot of trust in our financial advisors. Each one that we have ever worked with has been good at their job. That being said, all professionals make mistakes. It is possible that your financial advisor might not be paying attention to this aspect of your finances. it is really important therefore to have the conversation with your advisor.
If you didn’t open the account last year, then you are already $8,000 behind someone who did. If you don’t open and contribute to the account before the deadline of December 31st this year, you will be $16,000 behind.
To be clear, this is not financial advice telling you to do anything particular with your hard earned money. It is, however, advice that you need to be having a conversation with your financial advisor about this account. It is also advice that you need to be doing it ASAP because those professionals get really busy at the end of the calendar year.
It is easy for a matter like this to slip off someone’s radar and unfortunately, your long-term ability to purchase property might be the victim.
Like many things in life, the squeaky wheel gets the grease. Vouch for yourself and ensure that your money is working for you.
Have questions or don’t feel like you have the tools to have the discussion? Feel free to reach out to Citron insurance and we’ll help get you pointed in the right direction. We love helping.
Copy & Paste
Here’s a sample email you can use to copy paste to your advisor:
Hi _____,
With end of year around the corner, I want to make sure that we have a discussion about the FHSA. As you know, purchasing property is a goal of mine and I want to make sure that we are leveraging this account to its maximum potential.
Do you have time for a call in the next week or so?
Thanks,
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