The investment industry is seeking more details from the Canada Revenue Agency and the Department of Finance on the proposed tax-free savings account for first-time home buyers introduced in the federal budget this year.
The federal government has not yet published any draft legislation for the new savings program, known as a first home savings account, or FHSA. But it is expected to become available some time in 2023 – leaving the investment community with a “pretty aggressive timeline” to develop a product they know very little about operationally, said Robert Offen, manager of specialized services at AGF Investments Inc.
Mr. Offen, who was speaking at the annual Investment Funds Institute of Canada (IFIC) conference in Toronto, said IFIC – which represents more than 150 investment companies – first met with the CRA and the Finance Department immediately after the budget was released in April.
After that meeting, the group – along with the Canadian Bankers Association, the Canadian Life and Health Insurance Association Inc. and the Investment Industry Association of Canada – sent 11 pages of questions to the government.
The questions sought to clarify the requirements for eligibility, qualified withdrawals, plan termination, tax reporting and the filing process. They also requested information on the process around overcontribution, what happens in the event of the death of the holder and beneficiaries or if a holder becomes a non-resident, as well as the day-to-day administration of the new program.
Mr. Offen said draft legislation is expected by the end of July, followed by a 60-day period for industry comment. A second draft will be submitted around the end of October, which means royal assent would most likely not occur until the end of December.
“If we are looking to launch in 2023, and do the first filing by 2024, our timeline is pretty aggressive,” Mr. Offen told an in-person and virtual audience Monday.
When asked whether the group would meet again with the Finance Department, he confirmed that a second consultation will occur in the “second half of the year,” when the group knows “a bit more” about the product they have to build.
As outlined in the budget, the FHSA would allow any Canadian 18 or older to save as much as $40,000 – with an annual contribution limit of $8,000 – for their first home purchase. The new account is expected to combine the two major tax advantages of registered retirement savings plans and tax-free savings accounts. Similar to an RRSP, deposits would be tax deductible, while eligible withdrawals would be tax-free, as with a TFSA. Any investment growth would also be tax-free.
For investors – and potential home buyers – the accounts will provide another savings tool to help cope with a booming real estate market that has pushed out some first-time buyers in certain regions.
But for the investment community – particularly asset managers who will have to develop the product – the combination of TFSA and RRSP accounts adds layers of complexity to the process operationally, Mr. Offen said, and that needs to be clarified before any financial company can launch proprietary products.
During a panel discussion at Monday’s conference, IFIC senior policy adviser for taxation Josée Baillargeon said that both the CRA and the Finance Department have been open to talks with the investment community, and the associations are “hopeful” their list of questions will ensure that the next consultation will produce a lot more information.
“At the moment there is just very limited information … only 621 words, to be exact, that was written in the tax measure to explain this,” Ms. Baillargeon said. “There’s a lot more unknown than known at this point.”
With a file from Erica Alini
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