| Feature | Details |
|---|---|
| Annual Contribution Limit | $8,000 |
| Lifetime Contribution Limit | $40,000 |
| Tax-Deductible Contributions | Yes, similar to an RRSP |
| Tax-Free Withdrawals | Yes, when used for purchasing a first home |
| Investment Growth | Tax-free, including interest, dividends, and capital gains |
| Over-Contribution Penalty | 1% per month on the excess amount |
| Flexibility | Funds not used for a home can be transferred to an RRSP or RRIF |
The First Home Savings Account (FHSA) is a savings vehicle designed to help Canadians save for their first home. Here are some key features and tax implications:
Annual Contribution Limit: The annual contribution limit for an FHSA is $8,000, with a lifetime limit of $40,000. Contributions are tax-deductible, similar to an RRSP.
Tax-Free Withdrawals: Withdrawals from an FHSA are tax-free when used to purchase a first home. This can help first-time homebuyers save on taxes while accumulating funds for their home.
Investment Growth: Like a TFSA, all investment growth within an FHSA is tax-free. This includes interest, dividends, and capital gains.
Over-Contribution Penalty: Over-contributing to an FHSA will result in a penalty tax of 1% per month on the excess amount. For example, if you over-contribute $2,000, you would incur a penalty of $20 per month until the excess amount is corrected.
Flexibility: If the funds in the FHSA are not used to purchase a first home, they can be transferred to an RRSP or RRIF without affecting the contribution room of these accounts.
By leveraging the FHSA, first-time homebuyers can efficiently save for their home while enjoying significant tax benefits.
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