The first Home Savings Account – FHSA can be misleading. Many people who rent and don’t want to buy a home might think it is no use for them. That is not the case at all because they can transfer the money from FHSA to RRSP tax free without taking up any RRSP contribution room. Basically, it just increases the RRSP contribution by $40K which is the lifetime contribution limit of FHSA. That is substantial.
I know some people who don’t want to buy a home for many reasons. For one, they might not want to be tied down to a location. Since they don’t have a mortgage, they could have more savings. Thus, they might have used up all their RRSP and TFSA contribution room. Naturally, this new tax shelter FHSA can be quite beneficial for their retirement savings.
Again, the word savings account is also misleading. Many people think it is the same as a regular bank savings account. That is not the case. It can hold various investment securities in it such as stocks, bonds, mutual funds, ETF, etc.
I think this FHSA combine the goodies of RRSP, TFSA and HBP and removing the bad stuff.
- It doesn’t require earned income to generate contribution room. Just like a TFSA. Better than RRSP.
- It doesn’t require a repayment like the HBP. Some people find it challenging because after they buy a home, they have to pay mortgage and find paying back the HBP hard.
- Contribution is tax deductible. Just like RRSP. Better than TFSA.
- The assets inside FHSA can be transferred to RRSP tax free without taking up RRSP contributions room. Better than TFSA.
- All the interests, dividend and capital gain generated inside FHSA is not taxed. Just like RRSP and TFSA.
- Since the contribution is tax deductible like the RRSP, the withdrawal should be taxed like the RRSP. I don’t consider this is a pitfall. It is just fair.
You can see there are so many benefits. Renters, please take advantages of this ASAP.