First Home Savings Account goes into effect April 1, but banks aren't ready

Canada's six largest banks say the FHSA will be available later this year

·5 min read
Young woman holding the key to her new house. She is smiling and happy. They keyring is shaped like a house. The house can be seen in the background. For a story about the First Home Savings Account.
First Home Savings Account will be available later this year to prospective home buyers. (Getty Images)

Canadians will technically be allowed to open a Tax-Free First Home Savings Account (FHSA) starting Saturday, but the country's biggest banks won't be offering the account to customers until later this year.

The rules for the FHSA, a new registered plan that the federal government hopes will help shorten the time it takes for Canadians to afford a downpayment on a new home, come into force on April 1. However, Canada's biggest banks were not able to confirm when the account will actually be offered to Canadians. Yahoo Finance Canada reached out to the nation's six largest banks, and no lender was able to confirm that the new account will be available on April 1.

Royal Bank says it will begin offering the account "this spring." Bank of Montreal says the FHSA will be available "around mid-2023." CIBC and Bank of Nova Scotia say they will offer the account in the 2023 tax year. TD says the FHSA will be available "later in 2023." National Bank says it is "working to make the FHSA available to our clients as quickly as possible after the legislation comes into effect on April 1," adding that the bank is "making every effort to complete the necessary technological development."

Ottawa has said it "expects that Canadians will be able to open and begin contributing to an account in mid-2023," though the budget tabled earlier this week noted the option is available to banks beginning April 1.

Financial institutions need to submit an application package to the Canada Revenue Agency (CRA) for review and approval in order to start offering the FHSA to customers. In a statement, the CRA says it is working with financial institutions to ensure the account meets the FHSA program requirements.

"We expect that financial institutions will be sharing additional details about their FHSA products with the Canadian public in a timely manner," a CRA spokesperson said in the statement.

First Home Savings Account: What you need to know

Home prices have surged in Canada over the last decade, soaring to new highs through the COVID-19 pandemic amid a low interest rate environment. Housing prices have since pulled back after the Bank of Canada embarked on one of the most aggressive tightening cycles in its history, but the prospect of buying a home still remains out of reach for many.

Prime Minister Justin Trudeau's Liberal government first unveiled the FHSA in the 2022 budget, one that had a focus on addressing housing affordability. At the time, the government estimated that the account would provide $725 million in support to Canadians over five years.

The basics

The FHSA borrows features from a Tax Free Savings Account (TFSA) as well as a Registered Retirement Savings Plan (RRSP). Like an RRSP, all contributions to the FHSA are tax-deductible. And, like a TFSA, all growth earned in the account as well as withdrawals are non-taxable.

To open an account, you must be a resident of Canada and at least 18 years old. You must also be a first-time home buyer, meaning the account user has not owned a home in which they have lived in at any time during the calendar year before the account is open or in the preceding four years. The account can stay open for 15 years, or until the end of the year an individual turns 71, whichever comes first.

Hopeful home buyers will be able to put up to $40,000 into their FHSA. The annual contribution limit will be capped at $8,000, so it will take five years before account users will be able to max out their accounts. Individuals are allowed to have more than one FHSA, but the contribution room cannot surpass the annual and lifetime limits.

FHSA holders are also able to carry forward unused contribution room. That means if an individual deposited $5,000 this year, they would be able to carry over the $3,000 in unused room next year.

Similar to an RRSP, tax deductions do not have to be claimed in the same year as contributions.

When can you make a withdrawal?

There are a few conditions that need to be met before a home buyer can make a withdrawal.

First, the account holder needs to be a first-time home buyer. The individual also needs to have a written agreement to buy or build a qualifying home before Oct. 1 of the year after the withdrawal. The home must be located within Canada, and it must be your principal residence within one year of buying or building the home.

If these conditions are met, the account holder can withdraw the entire sum in the account or make a series of withdrawals. Any savings that aren't withdrawn or used up would be transferred on a tax-free basis to an RRSP or a Registered Retirement Income Fund.

What about the Home Buyers' Plan?

When Ottawa first unveiled the FHSA, it didn't allow first-time home buyers to use both the FHSA and Home Buyers' Plan (HBP), a program that allows individuals to withdraw up to $35,000 from an RRSP and pay back the funds within 15 years. However, the legislation that included the FHSA allows individuals to withdraw from both accounts when purchasing a home.

This means that between the FHSA and HBP, first-time home buyers will be able to withdraw up to $75,000 towards the purchase of a home.

With files from The Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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