Tax Tip Thursday

Savings Account Help – Part 2

This is a continuation of my mini-series on savings accounts! Last week I answered a few common questions about some of the different types of accounts and what you can/cannot do with them. Click here to read it first.

Top Questions about FHSAs

  1. I already have a house. Can I contribute to a family member’s FHSA and get a tax deduction?
    1. No.
  2. Can I combine my FHSA and RRSP using the Home Buyers’ Plan to buy a first home?
    1. Yes!
  3. What happens to the portion of an FHSA I don’t use to by a house?
    1. It can be rolled into your RRSP — without being taxed and with no effect on your RRSP contribution room. Just remember that you will be taxed on the money at your marginal rate when you withdraw it, since it will then be coming from your RRSP and is subject to the same rules.
  4. Do I need to claim an FHSA contribution in the same year as I file my taxes, or can I defer it the way I can with an RRSP?
    1. In this case, FHSAs follow the same rules as RRSPs.
  5. Can I have more than one FHSA?
    1. Yes. As with other registered accounts, you can open multiple FHSAs with no tax implications. But your contribution limit stays the same, so be sure to keep good records.
  6. If I inherit a property abroad, does that make me ineligible to open an FHSA, since I would then already own a house?
    1. It doesn’t. FHSAs can be used toward your first home in Canada, no matter how many homes you own in other countries.
  7. Can I transfer funds from my RRSP into my TFSA?
    1. You can, but it’s not always a good option, depending on your situation. You would not receive a deduction from the transfer, and you would lose the RRSP contribution room. You may want to check with a financial advisor first.

Some Other Important FHSA Info

Closing an FHSA

  • If you make a qualifying withdrawal to buy a home, the FHSA can remain open until the end of the following year;
  • If no withdrawal, the FHSA can remain open for up to 15 years or until the end of the year when you turn 71 years old, whichever comes first.
  • Any savings in the FHSA not used to buy a qualifying home before closing an FHSA could be transferred on a tax-free basis into an RRSP or Registered Retirement Income Fund (RRIF),
  • Once withdrawn, you are not permitted to have another FHSA in your lifetime.
  • Funds can also be withdrawn on a taxable basis.

Transfers

  • You will be able to transfer funds from one FHSA to another FHSA, or to an RRSP or a RRIF, all on a tax-free basis.
  • If funds are transferred to an RRSP or RRIF, they will be taxed upon ultimate withdrawal. These transfers won’t affect your RRSP contribution room or the FHSA deduction limit.
  • You will also be permitted to transfer funds from an RRSP to an FHSA on a tax-free basis, up to your FHSA deduction limit. These transfers will not be tax deductible and will not reinstate your RRSP contribution room.

Withdrawals

  • You must be a first-time home buyer at the time of withdrawal.
  • You cannot have acquired the home more than 30 days prior to the withdrawal.
  • You must also have signed a written agreement to buy or build the home before October 1 of the year following the year of withdrawal.
  • You must intend to occupy that home as your principal place of residence, and
  • It must be in Canada.

Saving For Your First Home?

It’s a tough market to get into these days, and all the more reason to make sure you’re maximizing your savings through TFSAs, FHSAs, and more. Book an appointment today to make sure no dollar is wasted!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.