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The new tax-free First Home Savings Account (FHSA) could be one of the most popular tax-advantaged investment vehicles available to Canadians, combining the benefits of a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA).
In a recent LinkedIn Live event, Globe Advisor reporter Brenda Bouw spoke with Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth in Toronto, about how advisors can help their clients take advantage of the FSHA.
Here are some highlights from the discussion:
What do you like about the FHSA, and why is it a good incentive for first-time homebuyers?
I think it will be the go-to plan for anyone who doesn’t currently own a home and who meets the definition of a first-time homebuyer. You can contribute $8,000 a year for five years, or $40,000 in total, and the contributions are tax-deductible. What’s more [is] the income, growth, and withdrawals to buy a home are tax-free, just like the TFSA. So, you get a tax deduction on the way in, tax-free growth throughout the 15 years, and a tax-free withdrawal on the way out when you use the funds for an eligible home purchase. It’s a no-lose proposition.
What if you don’t buy a home?
If you don’t buy a home, or even if you never intend to buy one, you can transfer the entire balance into an RRSP or registered retirement income fund (RRIF). You just need to be under [the age of] 71. Also, you don’t even need the RRSP contribution room to do it.
I sometimes call this the ‘full-time renters’ program.’ If you’re a lifelong renter, why wouldn’t you do this plan? This is a real opportunity for Canadians aged 18 and over to save and invest.
Can someone take advantage of the FHSA if their spouse owns a property?
No. If one person owns a home and their spouse – married or common-law – doesn’t but lives with them in that home, they’re both disqualified from opening an FHSA. Also, if you’re separated (and not divorced), you still don’t meet the definition of a first-time homebuyer.
Can parents open an FHSA under their name and transfer it to a child?
No. The FHSA has to be in the name of the individual who qualifies as a first-time homebuyer. Parents can gift the money to an adult child, who then opens the FHSA in their name.
Can parents take unused registered education savings plan (RESP) funds and put them into the FHSA?
You can do it in a roundabout way, but it’s not very tax effective. If you withdraw from an RESP, you may have grant repayments to the government and taxes on withdrawals, so you’re looking at tax rates of up to 73 per cent, and only that after-tax money could be given to the kids for the FHSA contribution. So, I’m not sure this strategy is the way to go.
Any final thoughts?
I don’t see any downsides for anyone who qualifies as a first-time homebuyer. Even if you’re a renter with no intention of ever buying a home, assuming you’ve already maxed out your RRSP contribution, maxed out your TFSA, paid down debt, and contributed to your kids’ RESPs, the FHSA, seems like a no-brainer.
This interview has been edited and condensed.
- Brenda Bouw, Globe Advisor reporter
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Will Emerge ETFs’ trading halt lead to more concerns about investing with niche providers?
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How this US$1.3-billion money manager is outperforming benchmarks by investing in emerging markets
Emerging markets have disappointed investors in recent years, but Laurence Bensafi has beat the benchmarks by being selective with her stock picks. Ms. Bensafi, deputy head of emerging markets equities at RBC Global Asset Management, invests in cheap, dividend-paying companies with good track records. “It’s a value strategy, but with a quality focus. We look for companies generating strong, free cash flow and paying shareholders with cash,” says Ms. Bensafi, a portfolio manager in London who oversees about US$1.3-billion in assets. She manages RBC Emerging Markets Dividend Fund, which returned 0.7 per cent for the 12 months ended March 31. That compares to a drop of 3.2 per cent for the benchmark MSCI Emerging Markets Index. Brenda Bouw speaks with her about what she’s buying and selling.
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– Globe Advisor Staff