Another way to save for a home is on the way

RRSPs and TFSAs better move over, because there’s a new registered savings account in town: it’s the Tax-Free First Home Savings Account (FHSA) and everyone’s talking about it. 

Driving the news: New details about the design of the FHSA released by The Department of Finance show it will work like a souped-up TFSA or RRSP, combining some of the advantages of each.

  • You’ll be able to contribute $8,000 per year (up to a $40,000 total cap), all of which will be tax-deductible, like RRSP contributions.
  • Similar to a TFSA, you can use cash in the FHSA to invest in stocks, bonds, GICs, and more—all the capital gains you see on those investments will be tax-free.
  • Anyone aged 18-71 who doesn’t own a home (and hasn’t in the past four years) will be eligible for the account and can withdraw money from the account to use to buy a home.

Why it matters: Stuffing cash in an FHSA will be an effective way to lower your tax bill and shelter investment gains, but could add heat to the housing market and drive up prices.

  • By offering tax-deductible contributions and tax-free capital gains, the FHSA creates a strong incentive for people to save—and eventually spend—money to buy a home.
  • That could counteract some of the chilling effects the Bank of Canada’s rate hikes have had on housing prices.

What’s next: FHSAs should be available sometime in 2023, so (if you’re able) now might be a good time to start planning your contributions.