First-time homebuyers can use FHSA and HBP, feds propose

Prospective homeowners will be able to access both the Home Buyers’ Plan (HBP) and the new tax-free first home savings account (FHSA) when purchasing a home if legislation to implement the FHSA is enacted.

That legislation, Bill C-32, passed second reading in the House of Commons yesterday. The bill removed wording from draft FHSA legislation, released in August, that would have limited qualifying purchasers from accessing both programs for the same home purchase.

“You still have to be a first-time homebuyer to use either an FHSA or the Home Buyers’ Plan for a particular purchase, but you will not have to choose — both can be used together,” said Bruce Ball, vice-president of taxation with CPA Canada in Toronto.

Bill C-32 also set an effective date for the FHSA: April 1, 2023.

First proposed in the 2022 federal budget, the FHSA will allow first-time homebuyers to save for a down payment on a tax-free basis. Like with an RRSP, contributions to an FHSA will be tax-deductible, and withdrawals to purchase a first home — including from investment income — will be non-taxable, like with a TFSA. There will be an annual contribution limit of $8,000 and a lifetime contribution limit of $40,000.

The HBP allows first-time homebuyers to withdraw up to $35,000 from an RRSP to buy a home.

Therefore, a homebuyer maximizing both programs will be able to access $75,000 in capital for a down payment, plus any growth in the FHSA.

FHSA rules allow funds to be transferred to an RRSP, or from an RRSP to an FHSA up to the yearly and annual deduction limits, on a tax-free basis. So the proposal to allow the use of both programs gives first-time homebuyers greater flexibility, Ball said.

“The FHSA intrinsically has advantages over the HBP because you get to make a deductible contribution and funds can come out tax-free,” Ball said. Now that homeowners can use both plans, the issue of which program to use “isn’t as crucial.”

Other technical revisions to the FHSA rules were made in Bill C-32, including adding a deduction denial for FHSA fees and money borrowed to contribute to the FHSA, and rules for the taxation of FHSAs that carry on a business — both of which better align FHSA rules with those for other registered plans.

As of today, the Department of Finance had not updated its backgrounder on the FHSA to reflect rule changes proposed in Bill C-32.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.