Too good to be true - FHSA?

As of April 1, Canadians who want to save for their first home can contribute to the new FHSA, a federal government savings program that is sure to make some people jealous. On paper, the Tax-Free Savings Account for First-Time Homebuyers sounds like an April Fool's Day hoax because it's so beneficial to young and old savers.

The FHSA allows you to invest a maximum amount of $8,000 each year for 5 years, a contribution that gives you a significant tax refund. In addition, the funds invested and their returns are exempt from tax deductions. An interesting hybrid between the advantages of an RRSP and a TFSA, this FHSA is a great way to combine the two.

Let's look at the numbers: in fact, an annual investment of $8,000 will have a net cost of $5030 after tax refunds for a Canadian whose annual salary is between $50,000 and $92,000. Not bad.

For a couple who decides to pool their FHSA for a down payment on a property, the potential gains become even more advantageous. We're talking about up to $118,000 after 10 years for two pooled FHSAs. This is starting to sound serious.

And that's not all... the FHSA contribution is transferable from one year to the next. For example, a $5,000 contribution in 2023 would allow the saver to invest the balance of the maximum $8,000 the following year, or $11,000.

The only restrictions: the FHSA is open to Canadian investors between 18 and 71 years old who have never bought a property or who have not owned a property for at least 5 years. That's easy.

What's the downside?

So, too good to be true, the FHSA? No, it's a good thing for Canadians looking to buy their first home in a market where home ownership is more complicated than it was just 15 years ago.

It's not all good news in FHSA-land either. Tax experts are warning that the federal program may not survive a change in government. Some experts are also raising doubts about the Liberal government's response to the homeownership crisis with the FHSA: it benefits wealthy Canadians and does nothing to ease the country's housing market.

These are honest criticisms that deserve to be raised. 

It is also worth remembering that too much savings is like not enough for the majority of Canadians (the middle class). It's best to focus your savings efforts on an RRSP, TFSA or FHSA based on medium to long-term goals.

So the FHSA? We take advantage of it while it lasts if buying a house is our priority and we diversify our savings.

This article was prepared by Pierre Dauth, who is a mutual fund representative with Investia Financial Services Inc. This is not an official publication of Investia Financial Services Inc. The views (including any recommendations) expressed in this article are those of the author alone, and are not necessary those of Investia Financial Services Inc.