CA First-Time Home Buyer's Guide in Canada: FHSA, RRSP, TFSA for Newcomers

The Dolphy Content Team
Posted January 24, 2024
5 min read

If you're new to Canada and considering buying your first home, or if you and your spouse haven't owned a primary residence in the past four years, there are some valuable opportunities to take advantage of. Understanding these options can help you build your wealth and prepare for homeownership.

1️⃣ RRSP - Home Buyer's Plan (HBP)

RRSPs are well-known for their powerful tax-deferral benefits, but many people mistakenly believe that you can only withdraw funds for retirement. In reality, you can withdraw from your RRSP at any time, but it will be counted as income for that year.

🌟 When buying your first home, you can withdraw up to $35,000 from your RRSP, and it does not count as income for that year! This is an incredible benefit. For a couple, the maximum withdrawal is $70,000, and you won't pay taxes in the year of withdrawal. Although you need to repay it over 15 years, you'll immediately receive a tax refund (extra cash flow) as you contribute to your RRSP, making it a fantastic strategy.

Here's a simple example: For example, A has saved $200,000 for a down payment, and your marginal tax rate is 40%. You contribute $35,000 to your RRSP, immediately receive a $14,000 tax refund, and then use the $35,000 through the HBP without affecting your home purchase fund. You'll have an extra $14,000 in cash flow. (This example assumes you have enough RRSP contribution room; consult your specific situation.)

2️⃣ FHSA - First Home Savings Account

A new opportunity that combines the advantages of RRSP and TFSA! Contributions are tax-deductible (similar to RRSP), and your investment grows tax-free (similar to TFSA). What's remarkable is that when you withdraw for your home purchase, you won't incur taxes (better than RRSP).

You can contribute up to $8,000 per year, which totals $40,000 over five years. If you purchase your home before the five-year mark, you can contribute for as many years as needed. The sooner you plan, the more you'll benefit.

Tips: Open an FHSA account by the end of 2023 to secure the $8,000 contribution room for the year 2023, whether you deposit money immediately or not.

3️⃣ TFSA - Tax-Free Savings Account

In a nutshell, TFSA accounts allow your investments to grow tax-free, both within the account and upon withdrawal. This means that it's meaningful to have investments that are appreciated within your TFSA.

All Canadian tax residents should make use of this tax-free account, which can also be used to save for a home purchase. The contribution room is determined by the number of years you've been a tax resident, and by 2024, you could have a maximum of $95,000 in accumulated contribution room.

4️⃣ First-Time Home Buyer Incentive

If you qualify as a first-time homebuyer, the government may provide you with funding equivalent to 5% or 10% of the home's purchase price, depending on the property type.

5️⃣ New Immigrant Mortgage Policies: Easier than Conventional Loans

For newcomers to Canada, there are mortgage policies designed to make it easier to secure a mortgage compared to traditional options. Be sure to explore these options when considering your home purchase.

Remember, these programs can greatly benefit newcomers to Canada who are looking to purchase their first home. It's essential to consult with a financial advisor or mortgage specialist to determine which options are best suited to your specific financial situation and homeownership goals.


Disclaimer: The content above is a compilation from diverse reliable online sources, including blogs and news articles. The Dolphy content team does not ensure the factual accuracy of the information. The provided information may be outdated, and it should not be considered as advice or a recommendation. It is advisable to consult with a licensed real estate agent or broker for accurate advice and recommendations.

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