Investing

Educating (Grand)Kids: The FHSA — A Potentially Valuable Tool

Carly Broetz
BBA
June 21, 2023

With the cost of home ownership becoming increasingly out of reach for many younger folks, our clients often have questions about the opportunity to assist (grand)children with buying a home or condo.

There are a variety of ways to help fund a (grand)child’s property, including purchasing the property in your name, gifting cash for the purchase or lending funds to the child. Each comes with various tax and family law issues. For example, if the home is not designated as a principal residence, there may be future significant tax consequences to the owner on any capital gain realized upon its sale. Or, if the child is married/common-law, there may be concerns about what will happen to the property if the couple splits. As always, we recommend seeking advice from tax professionals and family law experts.

Planning Ahead

If (grand)children are still years away from a first home purchase, the First Home Savings Account (FHSA) may be a valuable tool. The FHSA is a registered plan that combines the tax benefits of the RRSP and TFSA; tax-free in and tax-free out. Eligible Canadian residents ages 18 and over can contribute up to $8,000 per year, to a maximum of $40,000, toward a first home. Contributions are tax deductible, and qualified withdrawals are tax free. The FHSA can remain open for 15 years.*

While the limit has been criticized as being too low given current housing prices, the potential to invest funds and allow them to grow in the FHSA may be significant (chart). A couple who are both first-time home buyers could potentially each access the FHSA. As well, the rules now permit the use of the existing Home Buyers’ Plan (HBP) alongside the FHSA.1 The HBP allows first-time buyers to withdraw up to $35,000 from the RRSP, subject to repayment in 15 years and other conditions. Together, these tools could provide a substantial down payment for a home.

If you are having conversations with (grand)children about saving for the future, the FHSA may be an important consideration. If you are in need of support with financial literacy discussions with adult children, please don’t hesitate to reach out.

*This article is intended to provide a brief overview of the rules. For more information, please get in touch; 1. This was changed from the original proposals in Budget 2022.

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