How Much Can You Contribute to an FHSA?

Evelyn Jacks

It’s now possible to contribute up to $8,000 per year to your new First Home Savings Account (FHSA), starting in 2023 – this year! Have you opened an account yet?  Some financial institutions are starting to offer the plan and it is a great way to save on a tax preferred basis for a new home.  It’s also important to open the account because no FHSA contribution room is earned until the year that you do.  Following is a checklist to review with your family members, or in the case of professional tax, bookkeeping or financial advisors, with your clients and their younger family members.

How much can you contribute?  Each qualifying individual can contribute $8,000 a year.  The maximum lifetime contribution to the account is $40,000.  In the case of a couple, therefore, annual savings of $16,000 ($8,000 each) and a lifetime maximum of $80,000 ($40,000 each) can be achieved. 

CRA will start to provide you with information about any unused FHSA contributions available to be deducted on your notice of assessment or reassessment after you have opened your first FHSA..

What is the contribution period?  After 2023, you can make contributions anytime in the calendar year (January to December) for deduction purposes.  But for the 2023 tax year, the contribution period is April 1 to December 31.

Are the contributions otherwise tax deductible?  Yes.  Contributions to the FHSA are tax deductible, and income earned in the plan while the money is held there will not be subject to tax. 

When is the deduction claimed?   Taxpayers may deduct contributions in the year they are made, or it is possible to claim any undeducted contributions made in prior years.  But, unlike an RRSP, contributions made in the first 60 days of the year are only deductible in the year they are made, not in the previous year. 

Do you have to take the FHSA deduction in the year of contribution?  No.  You can choose not to take the deduction in the year of contribution and carry it forward to be used as a deduction in a more advantageous year – perhaps when an RRSP contribution is not available to you, for example.  Unused FHSA contributions can be carried forward and used even if you have closed the FHSA.  

Are there better options if you are cash-strapped?  Yes.  It may make more sense to transfer funds from a non-registered account or a TFSA, as the re-contribution room, generally speaking, is not lost.  (But note, generating losses to make the FHSA contribution will diminish TFSA contribution room and affect wealth-building opportunities in your non-registered account).

Can you make and deduct FHSA contributions to a Spousal Plan?  No.  Contributions to a FHSA plan for the individual’s spouse may not be deducted by the contributor. However, there are no attribution rules for FHSA investments; that is, individuals may provide funds to their spouse to contribute to a FHSA without having to report income down the line.  Specifically, Subsection 74.5(12) sets out a list of specified transfers of property that are exempt from the spousal attribution rules under sections 74.1 to 74.3. Contributions to a FHSA will be exempt from the attribution rules if a holder of a FHSA makes a contribution to the FHSA from funds gifted by a spouse or common-law partner. 

For greater clarity, for future income inclusion purposes (i.e., when amounts are withdrawn from the FHSA), no portion of such contribution would be attributed back to the non-holder spouse who made the gift.

Can you give your child money to make a FHSA contribution?  Yes; again, the attribution rules can be avoided if you give money to a child who is 18 or older, a qualifying factor for opening a FHSA.  The child must also be a resident of Canada.

Overcontributions. Contributions in excess of the $8,000 annual limit or the $40,000 lifetime limit will be subject to penalties.  The penalty tax, like that for RRSPs and TFSAs, is 1% for each month that the overcontribution remains in the plan.  In addition, FHSA contributions that exceed the annual or lifetime limit cannot be deducted.  However, new participation room ($8,000 per year) opens up on January 1 of the following year and, therefore, will convert an overcontribution to an allowable contribution so long as the lifetime limit has not been exceeded. 

Next time: Digging deeper into the FHSA rules

Be sure to join us at the May 24 CE Summit for the details you need to know to help your clients improve their financial lives.