Tax-Free First Home Savings Account (FHSA) Changes

As part of Bill C-32 (Fall Economic Statement Implementation Act, 2022), proposed legislation to implement the new FHSA program was included and there were several revisions from the previous draft legislation released on August 9, 2022. Notable changes include: 

• A taxpayer can now access both the FHSA and Home Buyers’ Plan (HBP) in respect of the same qualifying home.
• If a deceased taxpayer who is the last holder does not close their FHSA before its “cessation date” (when the plan is no longer an FHSA), a deemed income inclusion will arise and will be taxable to the plan beneficiaries (or the estate if there are no named beneficiaries). The cessation date is generally the end of the year following the year of death.
• The definition of a “qualifying individual” is revised such that it no longer includes an individual who has a beneficial interest in a qualifying home, and it adds a test relating to ownership by a spouse or common-law partner (spouse).
• In cases where a surviving spouse becomes the successor holder of an FHSA and the deceased holder had excess contributions immediately before their death, the survivor is deemed to have contributed to the FHSA thereby reducing the spouse’s FHSA contribution or potentially putting them into an overcontribution position.
• The revised legislation also includes additional changes so that the overall framework for FHSAs is better aligned with other registered plans by adding a deduction denial for FHSA fees and interest on money borrowed to make a contribution, and rules for the taxation of FHSAs that carry on business. 

As a result of these changes, it should be noted that the August 9, 2022 backgrounder is no longer fully accurate. Further details on these changes are available in the draft legislation and explanatory notes released by the Department of Finance Canada.

Finally, look out for our upcoming blog that will cover the basics of FHSA as well as answer common questions that may arise.