The Tax-Free First Home Savings Account will be open to any Canadian resident older than 18 and younger than 71 who hasn’t owned a home in the last five years.
Prospective homebuyers may or may not be looking at lower prices next year, but they will have an extra tax incentive to help make it happen.
The target date for launching the Tax-Free First Home Savings Account (FHSA) is “some point in 2023,” according to a draft proposal on the government of Canada’s website, with the tax deduction to be applicable for the 2023 tax year.
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Under the program, first announced by the Liberals during the 2021 federal election campaign, contributors would be able to deposit as much as $8,000 per calendar year (to a total of $40,000) in an account intended for a down payment on a principal residence in Canada. The contribution would be tax-deductible, as RRSP contributions are now, but the proceeds (including investment income) won’t be taxed as income when withdrawn if used for a home purchase.
That gives the program an edge over the current Home Buyers’ Plan, which allows Canadians to borrow up to $35,000 from their RRSPs for a down payment. That money must eventually be repaid to the RRSP or declared as income.
As with RRSPs, you don’t have to claim the tax deduction for a First Home Savings Account contribution in the year you make it, but unlike RRSPs, you won’t be able to contribute to a spouse’s plan and claim the deduction for yourself.
Pitched initially as an incentive for would-be homebuyers 40 and younger, the new program will in fact be open to any Canadian resident older than 18 and younger than 71 who hasn’t owned a home in the last five years.
The account stops being an FHSA 15 years after being opened, or when the holder turns 71. The proceeds can be transferred to an RRSP or RRIF (Registered Retirement Income Fund) without penalty, but would otherwise be treated as taxable if not used for a home purchase.
And now for this week’s reader questions.
Q: Is there any thought to reviving Canada Savings Bonds (CSBs) now that interest rates have increased?
A: That doesn’t appear to be in the cards. CSBs were discontinued in 2017 after years of paltry payouts and declining sales, and any remaining ones stopped earning interest as of December 2021.
But if it’s a vehicle that appeals to you, Quebec continues to offer its own savings bonds through Épargne Placements Québec. The provincial savings bonds go on sale twice a year, in May and October, in amounts as low as $100. The last issue had a guaranteed minimum interest rate of 2.25 per cent for the year beginning June 1, but it can be bumped up if market conditions change, and that’s what happened. The rate increased to three per cent on July 19. The bonds have a term of 10 years, but can be redeemed without penalty at any time.
Q: My notice of tax assessment for 2021 arrived recently and mentioned I had received Quebec’s one-time cost-of-living tax credit of $500. I have not yet received any such amount. Is there a time frame for this payment?
A: If your notice of assessment from Revenue Quebec says you received it, the credit was taken into account during the processing of your 2021 tax return, either boosting your refund or reducing the taxes owed. Normally, you’d receive a refund on the same date as the notice of assessment. If you didn’t, perhaps the funds were applied to an outstanding tax bill.
If the notice of assessment doesn’t make it clear where the credit went, a call to Revenue Quebec might be in order.
The Montreal Gazette invites reader questions on tax, investment and personal-finance matters. If you have a query you’d like addressed, please send it by email to Paul Delean at gazpersonalfinance@hotmail.com.
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