Time is Running Out for First-Time Home Buyers to Save in 2024

Special Guest Columnist Geoff Currier

Owning a home, once almost considered a right of Canadian citizenship, has become a more distant dream for millions. The high cost of housing, coupled with a desperate shortage of supply, has turned the notion of home ownership into a near impossibility for many Canadians and those who have arrived in our country more recently.  The Tax-Free First Home Savings Account (FHSA) can help but it’s important to open an account before December 31, 2024 to create and preserve the contribution room.

The Backdrop.  In order to place buying that first home within reach, the government created the Tax-Free First Home Savings Account (FHSA). This is an excellent tool which can be used to save for a first home and reduce federal income tax at the same time. It is one aspect of a broader strategy on the part of the current government to build four million new homes and  to make housing and home ownership more affordable and realistic for Canadians.

In its own news release, Solving the Housing Crisis: Canada's Housing Plan the government concedes that “If you work hard in this country, you should be able to afford a home. But that middle class dream is feeling further and further out of reach.” It’s interest to note that as recently as the last election cycle, the current government was promising to “grow the middle class and those wishing to join it.”

A Million FHSAs.  Nevertheless, the Tax-Free First Home Savings Account has been embraced by nearly a million Canadians looking to make that down payment and secure their future. 

The account allows for a maximum contribution of $8,000 per person each year up to a maximum of $40,000 over five years. This would mean that a theoretical couple who contributes the maximum amount over a five year period would have accumulated an $80,000 down payment on a home. That amount could be greater with investment returns – which are also accumulating tax free in the plan.

The most appealing aspect of this account is that the money which goes in is tax deductible and is not taxed on withdrawal if the money is used for the first home down payment.  That’s a triple win – tax deduction on contribution, tax free earnings and a tax free withdrawal.  Even if you don’t buy a home with the funds, you can transfer them to an RRSP in addition to normal contribution room. 

More T1 Tax Incentives.  Elsewhere on the tax return, the $10,000 First-Time Home Buyer’s Tax Credit can be claimed.  In fact, you don’t have to be a first-time home buyer if either of the following applies to you, according to CRA’s website:  you are eligible for the Disability Tax Credit or you acquired the home for the benefit of a related person who is eligible for the disability tax credit

Deadlines Coming.  There is some urgency, however. In order to receive the tax benefits for the tax year of 2024, contributions to a person’s FHSA must be made by December 31st of this year. This account does not operate the same way as a typical RRSP, which usually has with a deadline of March 1 (60 days after year end).  However, this year that RRSP deadline is March 3.

It’s important to advise any of your clients who are in a position to begin saving for their first home, to open a FHSA as soon as possible and reduce their federal tax payable for 2024 to preserve contribution room of $8000 for 2024. Or, if they already have an account, to consider making their contributions before the end of the calendar year.

Cashing In with an RRSP Sweetener.  When the day arrives that your clients are ready to make that purchase, they may also draw down on their RRSP-HBP to increase that down payment, in addition to drawing down the FHSA.

In mid April the government announced that the withdrawal limit from the RRSP Home Buyer Plan (HBP) is moving from $35,000 to $60,000. It has also added on another three years of grace for the RRSP contributions to be repaid.  This grace period applies to people who withdrew or will withdraw from their Home Buyers Plan between January 1, 2022 to December 31, 2025. A word of caution is required here, though, as this extended grace period appears to be only temporary. Clients should be made aware that the grace period may not be extended further.

All of this presupposes that your clients have the wherewithal to make contributions to either a FHSA or an RRSP. With close to 80% of Canadian workers earning less than $100,000 a year, contributing the maximum $8,000 to a FHSA may not be realistic. However, any contribution will ease the federal tax burden and help them take a step toward owning that first home.

Bottom Line.  Once that first home is purchased and equity builds, generational wealth begins to accumulate. The FHSA is an excellent tool for the government to make good on its earlier promise to grow the middle class.