FHSA – New Tax Forms Available

There are very specific rules for opening, withdrawing from and closing a  First Home Savings Accounts (FHSA), the newest registered savings plan in Canada.  It’s very advantageous to qualifying savers, as it provides a tax deduction, tax free growth of savings and a tax free withdrawal when a qualifying home is acquired.  But it’s best to seek the help of a qualified tax services specialist and RWM™ on the financial services side, to complete the transactions.  Those advisors must know about a couple of new forms just released for qualifying withdrawals and transfers. 

Here are the forms to know:

• RC725 – Request to Make a Qualifying Withdrawal from your FHSA
• RC720 – Transfer from your RRSP to your FHSA.
• RC721 – Transfer from your FHSA to your FHSA, RRSP or RRIF 
• RC723  – Transfer from an FHSA to another FHSA, RRSP or RRIF on Breakdown of Marriage or Common-law Partnership.

How do you request a qualifying withdrawal from a FHSA?  Use form RC725 – Request to Make a Qualifying Withdrawal from your FHSA. You have to be a resident of Canada to do so and remain a resident until you acquire the qualifying home you are buying or building.   You also cannot have owned ( or jointly owned)  a home you occupied as your principal residence (whether or not that was in Canada):

• at any time beginning January 1 of the fourth year before the year of the qualifying withdrawal and
• ending 31 days before the date of the qualifying withdrawal.

You must have a written agreement to buy or build the home and acquire it before October 1 of the year after the year you made your first qualifying withdrawal from the FHSA.

But beware, you cannot have owned the qualifying home for more than 30 days before making the request for withdrawal.  And further, you must intend to occupy the qualifying home as your principal resident no later than one year after buying or building it.

Can FHSA contributions be transferred to another RRSP or RRIF You Have?  Yes, that’s possible if the funds are not used to purchase a qualifying home or if there are excess funds in the plan once the home is purchased. That transfer needs to be made by December 31 of the year following the withdrawal.  The transfer will not affect the available RRSP contribution room but does not increase it for the purposes of making a new RRSP deduction.  Use new form RC721.  You can also use that form to transfer funds to another FHSA. 

Can FHSA contributions be transferred to another FHSA, RRSP or RRIF on Marriage Breakdown?   Yes, but this must be a direct transfer using form RC723.

Can FHSA contributions be transferred to a TFSA?  No. If you want to move FHSA funds to your TFSA, you’ll have to make a taxable withdrawal and then make a TFSA contribution.  The withdrawal amount will be included in your income, and the TFSA contribution will be limited to your available TFSA contribution room.

Bottom Line:  When it come to the new FHSA,  there are lots of ways to get a qualifying withdrawal or transfer wrong.  Be sure to work with a DMA™ Tax Services Specialist and/or an RWM™ Real Wealth Manager for sound advice throughout the lifecycle of your FHSA investment.

Evelyn Jacks is President of Knowledge Bureau and author of 55 books on tax and financial planning.  She can next be heard speaking at the September 20 CE Summit.  To reserve your virtual event pass, please register early here.