Investing In Your Tomorrow, Today.
Planning and Saving For Life’s Big Moments
First Home Savings Account (FHSA)
Future homeowners can use FHSA, which is a tax free, to help save for a qualified first-home purchase in Canada.
The FHSA combines the benefits of a TFSA and a RRSP to provide you with a tax deduction that lowers your taxable income and lets you create tax-free returns to be used to purchase your first house. You can utilize the money you have saved to finance your first home purchase without having to pay taxes on withdrawals or pay back the money.
Contribution Room
You can contribute up to $8,000/year to a maximum of $40,000 in a lifetime. You can also carry forward $8000 of unused contribution room from one year to the next, for max contribution of $16,000. However, you must have the account opened to start accruing contribution room. It would be advantageous to open an account and allow the contribution room to grow even if you do not think you are going to max out the investment for that year.
FHSA eligibility criteria:
- You are 18 years of age or older, however in certain provinces and territories, the legal age at which an individual can enter a contract is 19 years old. Subsequently, in these provinces you must be 19 years old.
- You are 71 years or younger as of December 31st of the year you open your FHSA.
- You are a resident of Canada.
Key Advantages of a FHSA
- FHSA reduces your taxable income for a given year and may entitle you to a tax refund.
- Your savings and growth are tax free when you withdraw the amount.
- FHSA withdrawal do not need to be paid back to the plan unlike the Home Buyers Plan (HBP) through a RRSP.
- You can transfer money from your FHSA to your RRSP or RRIF as long as you have unused room within your RRSP.
Tax Free Savings Account (TFSA)
A TFSA is a savings plan that allows you to grow your savings, tax free.
A tax-free savings account is appropriate for medium- to long-term financial goals. Even if you withdraw funds, the account’s returns are not taxable. Furthermore, your money can be accessed at any moment, making it an ideal emergency fund.
Key advantages of a TFSA:
- Your TFSA withdrawals do not generate taxable income meaning you can withdraw money tax free.
- Unused contribution room is carried over to the following year, allowing you to contribute more than the annual maximum.
- This is an ideal choice for medium- and long-term savings goals, such as a trip or the purchase of a home or automobile.
- Seniors can benefit from owning a TFSA because they can supplement retirement income with TFSA income without affecting government benefits.
Registered Education Savings Plan (RESP)
This type of registered savings plan is designed to save for your child’s education.
What is a RESP?
The money deposited in a RESP is intended to cover tuition and all study-related expenditures, such as accommodation, school supplies, meals, and transportation costs. RESP investment growth accumulates tax deferred until it is withdrawn. Once withdrawn the tax is realized in the hands of the recipient.
Canada Savings Grant Incentive
To incentivize parents to contribute to their children’s post-secondary education, the federal government established the Canada Education Savings Grant. This award is equal to 20% of the yearly contributions made to a RESP, up to a maximum of $500 annually for each recipient. A beneficiary can receive a maximum grant of $7,200 in their lifetime.
To begin planning for life’s big moments, contact our office today.
