FHSA: Do You Need to Close It After Buying a Home?
The First Home Savings Account (FHSA) is a popular way for first-time home buyers to save for a home while receiving valuable tax deductions. But what happens if you buy a home and don't use the FHSA funds right away?
The Good News
According to a recent CRA interpretation, simply buying a qualifying home does not automatically close your FHSA.
You may continue to keep the account open and make contributions, provided you have available FHSA contribution room and have not reached the end of your participation period.
What About Future Tax-Free Withdrawals?
This is where caution is needed.
To make a tax-free qualifying withdrawal in the future, you generally must meet the first-time home buyer requirements at that time. If you continue to own and live in the home you purchased, you may not qualify for a future tax-free withdrawal to buy another home.
RRSP Transfer Still Available
If you decide not to use the FHSA funds for a home purchase, you can generally transfer the balance to your RRSP or RRIF tax-free, without affecting your RRSP contribution room, provided the transfer is made before the FHSA participation period ends.
Key Takeaway
Buying a home does not automatically require you to close your FHSA. However, keeping the account open could affect your ability to make future tax-free withdrawals. In some cases, it may be beneficial to leave the FHSA open, while in others, making a qualifying withdrawal and closing the account may be the better option.
Action Item: Before purchasing a home, or immediately after, review your FHSA strategy to determine whether keeping the account open or closing it will provide the greatest long-term tax benefit.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents.