Most people know that you can use up to $35,000 of your RRSP for a down-payment on your first home. Under this First-Time Home Buyers Plan (HBP), you essentially borrow up to that amount from yourself out of the RRSP and must re-pay the amount back into your RRSP starting the second year after you withdraw it. The re-payment is 1/15 of the total amount withdrawn, each year for 15 years. For example, if you take out the full $35,000 under the HBP in 2022, you will begin paying it back to the RRSP in 2024 in the amount of $2333.33 per year. You received a tax deduction on the original RRSP, and it’s free to take it out (non-taxable), so long as you start paying it back per the terms in year two. If you don’t pay your 1/15 back per year, that amount is then added to your income for that year, and you must pay the tax on it.
In 2023, a new government plan is being introduced to aid first-time homebuyers. It’s called the Tax-Free First Home Savings Account (FHSA), which is kind of a hybrid of the RRSP with HBP and a TFSA account. The new FHSA will allow up to $8000/year in contributions for saving for your first-time house purchase. These contributions will generate a tax-deduction (like an RRSP). You can contribute up to $40,000 as a lifetime maximum contribution into this plan. One of the biggest differences is in the withdrawals: You can take out all of your contributions and any investment gains tax-free (like a TFSA) so long as it is for a qualified house purchase, and you are not required to “pay it back” like under the HBP.
We don’t know exactly when these accounts will be available, however the government has said at some point in 2023. They are available to all Canadians over 18 and less than 71 years of age. You will be allowed to contribute a full $8000 annual limit each year, however you are only granted up to $8000 of carry-forward room over the lifetime of the account. For example, if you opened the account in 2023 and contributed only $4000, in 2024 you could contribute $12,000 ($4000 carry-forward + $8000 new room).
There will be more details regarding this new type of savings account in the coming months. I hope this gives a good idea of some of the basics in the meantime.