Today’s housing market remains challenging, leaving many first-time home buyers hard-pressed to come up with a down payment. So, quite often, parents or grandparents want to help out. As of April 1, 2023, a new avenue has opened to help fund a down payment: the First-Home Savings Account (FHSA).
Although you can’t contribute directly to an adult child’s FHSA, you can gift funds to that child so they can make a deposit into their FHSA. There is no attribution of investment income back to you.
How the FHSA works
You must be at least 18 years old to open an FHSA, or the age of majority in your province. Account holders can contribute up to $8,000 a year to their FHSA, to a $40,000 maximum—which means a couple can contribute a maximum of $80,000. As with a Registered Retirement Savings Plan (RRSP), contributions can be claimed as a deduction against taxable income to reduce the amount of tax payable. The account can remain open for up to 15 years. Investments grow tax-free in the account, and withdrawals for a down payment are tax-free—the same treatment as for investment growth and withdrawals in a Tax-Free Savings Account (TFSA). So, an FHSA provides some of the best features of an RRSP and a TFSA.
Giving your child a head start
Parents who help children buy a home typically gift funds for the down payment at the time of purchase. An advantage of starting earlier by gifting funds for the child’s FHSA is that your money goes further, thanks to the FHSA’s tax deduction, tax-free growth and tax-free withdrawal. You can make a greater impact.
Also, note that an account holder can defer their tax deduction to a future year—saving more tax by claiming the deduction when they’re in a higher tax bracket.