Year Two of the FHSA: Contribution Room and Strategic Deductions

FHSA ELIGIBILITY CRITERIA

You qualify to open an FHSA if you meet these requirements:

? Residency: You are a Canadian resident with a valid SIN.

? Age: You are over the age of majority in your province or territory and under 71 years old.

? Home Ownership: You or your spouse/common-law partner have not owned and lived in a home as your principal residence within the past four calendar years.

KEY FHSA FEATURES AND BENEFITS

1. Contribution Limits:

? Annual Limit: $8,000 per calendar year.

? Lifetime Limit: $40,000 within 15 years of opening the account.

? Unused contribution room (up to $8,000) can be carried forward, provided the ??account remains open.

2. Tax Advantages:

? Contributions are tax-deductible in the year they are made or can be deferred to a future year.

? Investments grow tax-free.

? Withdrawals are tax-free if used for a qualifying home purchase.

3. Flexibility:

? Combine withdrawals with a spouse/partner for a total of $80,000 (plus investment growth) if both have maximized contributions.

? Transfer unused funds to an RRSP or RRIF if the money isn’t used to purchase a home within 15 years or by December 31 of the year you turn 71. Alternatively, withdraw funds as taxable income.

2024 CONTRIBUTION ROOM SCENARIOS

If You Opened an FHSA in 2023:

? You now have $16,000 in contribution room: $8,000 for 2023 (if unused) and $8,000 for 2024. If You Didn’t Open an FHSA in 2023:

? You gain $8,000 in contribution room for 2024 upon opening your account this year. Unlike RRSPs or TFSAs, contribution room for an FHSA starts accumulating only after opening an account.

EXAMPLES OF FHSA CONTRIBUTION STRATEGIES

1. Maximizing Contributions:

? Sam opened an FHSA in 2023 but didn’t contribute until 2025. In 2025, she can contribute $16,000 $8,000 for the current year + a maximum of $8,000 in carry forward room = $16,000). She can deduct the contribution from her 2025 taxable income or carry the deduction forward for future tax savings.

2. Deferring Deductions:

? Julia opened an FHSA in 2023 and contributed $5,000 but didn’t claim the deduction. In 2024, she contributes another $11,000 (her remaining contribution room; $8,000 room - $5,000 used = $3,000 carried forward for 2023 + $8,000 room for 2024 = $11,000 room in 2024). She deducts the full $16,000 in 2024, when she is in a higher tax bracket, maximizing her tax savings.

3. Limited Carry-Forward Room:

? Mark opens his FHSA in 2025. Since he didn’t open an account in 2023 or 2024, he has no carry-forward room and can only contribute $8,000 for 2025.

4. Multiple Accounts:

? Sanjay opened an FHSA in 2023 and contributed $4,000. In 2024, she opens another FHSA at a different institution and contributes $12,000 (8,000 room for 2023 - $4,000 used. $4,000 remaining for 2023 + $8,000 for 2024 = $12,000). She ensures her contributions don’t exceed annual and lifetime limits.

5. Unused Funds:

? Giulio opened an FHSA in 2023, contributed $5,000, and didn’t use the account for 15 years. By the end of the term, his account is worth $6,000. He can transfer the funds to an RRSP or withdraw them as taxable income.

PLAN YOUR DEDUCTIONS STRATEGICALLY

FHSA contributions don’t need to be deducted in the year they’re made. If you anticipate a higher income in future years, you can carry deductions forward to maximize tax savings when you’re in a higher marginal tax bracket.

UNDERSTANDING THE FHSA’S FLEXIBILITY

By grasping the nuances of the FHSA and how it compares to RRSPs and TFSAs, you can align it with your home-buying, tax-planning, and retirement strategies. Take time to plan contributions and deductions carefully to make the most of this account.