Who is eligible?

The account is available to Canadian residents who are at least 18 years of age, no older than 71, and buying a home for the first time (or who have not owned a home in the current and prior 4 calendar years). A minimum down payment of 10% of the value of the home is required.

Key features

The FHSA shares several features you will be familiar with in RRSP and TFSA accounts. Contributions to the plan are tax-deductible and income on your investments grows tax free. However, unlike an RRSP, withdrawals to buy a home are not taxed as income.

You can contribute up to $8,000 per year to a lifetime maximum of $40,000 starting in 2023 and unused amounts can be carried forward to future years.

These are significant benefits as the tax deductibility of the contribution alone can, for someone in Ontario with an income of about $75,000 and putting in the maximum amount, reduce their taxes by about $2,500 giving them more money to save for a home.

The FHSA can stay open for a maximum of 15 years, allowing funds to compound tax free for an extended period.

Withdrawing funds

If used to buy a home, all the funds, including any income earned within the account, can be withdrawn tax free.

Even if you decide not to buy a home with the money, the plan allows you to transfer the money to an RRSP or RRIF with no impact to your contribution room – a very attractive alternative.

We are happy to discuss how this opportunity may benefit you and your family. Call us for a review of your existing investment plan and how an FHSA can add value in the context of your personalized financial goals and strategy.

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Often, our clients ask us how we can help them and their children invest in a tax effective way. There are not very many ways to do that in Canada. While many are familiar with RRSP accounts, TFSA accounts are of great benefit as well. TFSAs are only available to Canadian residents who turned 18 on or after 2009. They allow for capital gains, interest, and dividend income to be (and grow) tax free. Unlike RRSPs and many other registered accounts, TFSAs also offer flexibility. Savings in TFSAs can be used as emergency funds. Accounts are accessible, when in need, and funds can be withdrawn at anytime with no penalties. Since contributions are made with after-tax dollars, unlike an RRSP, no taxes are withheld if you choose to make a withdrawal. Every calendar year a plan owner is allowed to make a fresh contribution, currently $6,000 per year, and any unused contribution room is accumulated for use whenever funds are available.

As long-term investors, we encourage all our clients who are looking to grow their funds, to not withdraw from their TFSAs and to instead allow the tax free-growth to compound over time.

For those of you with children eligible to open a TFSA, investing through this account will be instrumental in introducing your children to investing. You should consider (them) opening a TFSA and begin to create a positive investment learning and savings experience. Maximizing TFSA contributions is preferrable for lower income earners: your children who may have just joined the workforce may find they want to start contributing to a TFSA versus an RRSP at first. Starting at age 18 can allow decades of compounded growth, and the early start can make a huge difference over that long period of time.

As with all regulated plans, it is important to not overcontribute: a 1% penalty per month will be applied to ineligible amounts. Your contributions to TFSAs may be “in kind” (transfer of securities) or in cash. “In kind” contributions, however, might have tax consequences at the time of transfer.

Clients interested in income splitting will be able to contribute up to their own TFSA maximum contribution room to their spouse’s TFSA.

Like other registered accounts, a beneficiary (ies) may be appointed for a tax-free rollover of the proceeds and future growth of inherited funds after the original owner passes away.

You can find more information on TFSAs in our FAQ on our website here.

If you still have questions on the merits of TFSAs, please call us. We will be happy to help you make the right investment decisions for you and your family.

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OAS is a government benefit funded by Canadian taxpayers. According to government reports, seniors will account for more than 23% of the population by 2031. On average, a senior will receive OAS for a total of 21 years. The government anticipates OAS will cost around $104B annually(?)by then. As such, changes to the OAS program are not completely out of question and have been considered before.

For now, there is some flexibility on when to apply for Old Age Security (OAS). This decision should be based on your need for income, life expectancy, tax considerations and the desire to maximize benefits. When in good health and need to protect against longevity risk, deferring the OAS may be a useful tool. In making such decision, you need to ensure that you will still qualify to receive the increased OAS at the deferred time.

When & How much?

You may apply for OAS up to 11 months before you want your OAS pension to start. The start date for your OAS pension can be deferred up to 5 years, resulting in higher pension payable by 0.6 % per month that the pension is deferred. By age 70, you would see a total increase of 36 %, should you choose to defer. A rough estimate shows the maximum monthly payment at age 65 around $615.37 (year 2021), or $7,384  annually. If deferred until the age of 70, the annual OAS pension would be $10,013, an increase of $2,651 per year for your lifetime (indexed to inflation).

Factor in overall income

Eligible high income earners (65+) will repay all or part of their OAS pension. Claw back applies if your overall (net world) income exceeds $79,845 (2021). This means that for every dollar of income above the threshold, your OAS pension is reduced by 15 cents. OAS is fully clawed back when your overall income exceeds $129,075 (2021). That is why deferring OAS to a calendar year when you are in a lower tax bracket makes a lot of sense. Further, some or all of your OAS benefits may be clawed back once your RRSP becomes a RRIF at the end of your 71st year.

To summarize, if you fear running out of money in old age, are in good health and expect to live a long life (consider family history, etc.), you should postpone OAS to guarantee a higher base level of income later in life. If in relatively poor health, you should take OAS (and CPP) as soon as possible. Generally, if you need the money you should take it. If you don’t need it, then you should consider deferring it.

As always, we are happy to meet and review your personal circumstances in helping you consider other deferrable income sources and maximizing your overall income. Call or email us with your questions.

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