Buying your first home? These are the top 3 tax strategies to use

National Post


Nearly one in five Canadians aged 18 and up say they “probably will or may” buy a home in 2024, according to a new Wahi Realty Inc. survey of Angus Reid Forum members that looks at homebuyer intentions for the new year as well as what they are doing to make their ownership dreams come true.

To that end, the survey found that many are planning to make sacrifices, including spending less, working longer hours or taking on a side hustle.

If you’re thinking of buying a home in 2024, and this is your first home, there are a few tax incentives you should be considering. Let’s review the top three tax strategies.

First home savings accounts (FHSAs)

Launched in 2023, the FHSA is a new registered plan that gives prospective homebuyers the ability to save $8,000 per year, up to a $40,000 lifetime limit, on a tax-free basis towards the purchase of a first home in Canada. The FHSA combines the best feature of the registered retirement savings plan (RRSP), a tax-deductible contribution, with the most attractive feature of the tax-free savings account (TFSA), the tax-free withdrawal of all contributions, investment income and growth earned in the account when used to buy a first home.

To open an FHSA, you must be a resident of Canada and at least 18 years of age. The FHSA’s definition of a first-time homebuyer is that you don’t live in a qualifying home as your principal residence, which is owned, jointly or otherwise, either by you or your spouse or common-law partner in the calendar year in which the account is opened (prior to the home purchase), or in the preceding four calendar years.

Just like RRSP contributions, you don’t have to claim the FHSA deduction in the year you make the contribution. The contribution can be carried forward indefinitely and deducted in a later tax year, perhaps when you may be in a higher tax bracket. If you don’t have the cash to contribute this year, you can transfer funds from an existing RRSP to an FHSA on a tax-free basis, subject to the FHSA annual and lifetime contribution limits, although you won’t be able to claim a tax deduction for the transfer.

The FHSA can remain open for up to 15 years or until the end of the year you turn 71, whichever comes first. Any funds in the FHSA not used to buy a qualifying home by this time can be transferred on a tax-deferred basis into an RRSP or registered retirement income fund (RRIF), or withdrawn on a taxable basis.

This means that for qualifying first-time homebuyers, contributing to an FHSA is truly without risk (ignoring any risk of the investments inside the FHSA) since if you don’t end up buying a home, you effectively get another $40,000 (plus growth) of RRSP room, and you benefited from up to 15 years of tax deferral in the FHSA.

If you are planning to buy a home in the very near future, keep in mind there’s no minimum period of time that FHSA contributions must remain in the account prior to buying your first home. In other words, you can contribute $8,000 to an FHSA today, claim a tax deduction for the amount contributed (in 2024 or any future year), and then withdraw the $8,000 (plus any income or growth) tax free, beginning the following day if you buy a qualifying home.

Home Buyers’ Plan (HBP)

The federal HBP allows a first-time homebuyer to withdraw up to $35,000 from their RRSP to purchase, or construct, a new home without having to pay tax on that withdrawal. Individuals may also participate in the HBP if they have lived in a home with their spouse or common-law partner, but, due to a breakdown in their marriage or partnership, they have been living separate and apart from their spouse or partner for at least 90 days.

Under the HBP, any funds withdrawn must be used to acquire or build a home before Oct. 1 of the following year. Amounts withdrawn under the HBP must be repaid over a maximum of 15 years, starting in the second calendar year after the withdrawal; otherwise, the amount that was required to be repaid but was not repaid in a particular calendar year is added to the participant’s income for that year.

You can participate in both the FHSA and the HBP, meaning that if you contribute the $40,000 maximum to your FHSA, and participate in the HBP by withdrawing the $35,000 maximum allowed from your RRSP, you can access $75,000 of tax-free savings, plus any growth or income on the FHSA contributions, which also come out tax free. If both you and your spouse or partner participate in both plans, that could be at least $150,000 of tax-free funds (plus income/growth) towards your first home.

Unlike the FHSA, however, the borrowed funds to be withdrawn under the HBP must be in your RRSP for at least 90 days before they are taken out, or the RRSP contribution may not be deductible.

Home Buyers’ Amount (HBA)

Finally, when it comes time to file your personal tax return for the calendar year in which you buy your first home, don’t forget to claim the HBA. It’s a non-refundable tax credit worth $1,500 to first-time homebuyers who acquired their first home during the year.

The credit is also available for the purchase of a home either by, or on behalf of, an individual eligible for the disability tax credit if the home enables the individual to live “in a more accessible dwelling or in an environment better suited to the personal needs and care of that person.”

Any unused HBA can be claimed by your spouse or partner. Note, however, that even if each spouse or partner uses their own funds to jointly purchase a new home, the HBA is still limited to one credit of $1,500 (as opposed to $1,500 for each spouse or partner).