CRA $8000 Payment 2024, Eligibility, Procedure, and Contribution Limits

Published On: 14/01/2025

The Canadian housing market poses a significant challenge for first-time homebuyers, with soaring prices and tough mortgage requirements.

To ease these difficulties, the Canadian government introduced the First Home Savings Account (FHSA) in 2023.

This innovative savings plan offers substantial fiscal advantages, making homeownership more attainable for Canadians entering the market for the first time.

The FHSA blends the benefits of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA), offering tax deductions and tax-free investment growth.

According to the Canada Revenue Agency (CRA), the program is available to individuals aged 18 to 71 who have never owned a home or have not owned one in the previous four calendar years.

First Home Savings Account Details

Eligible participants can contribute up to $8,000 annually, with a lifetime contribution limit of $40,000 per individual.

These contributions are tax-deductible, which reduces the contributor’s taxable income for the year.

Additionally, there is a government match of 25% on contributions, up to a maximum of $10,000 over the account’s lifetime.

For individuals who cannot reach the annual contribution limit, carry-forward room is available, allowing for contributions in future years.

This ensures that contributors can maximize their savings even if they miss a year or prefer to contribute more later.

Given the average Canadian home price of around $716,000 as of late 2023, the FHSA can help potential buyers accumulate a substantial down payment more quickly.

Through tax savings and untaxed investment growth, the program provides much-needed financial relief, supporting homeownership in a volatile economic climate.

Types of FHSAs

There are different types of FHSAs, each catering to specific investment preferences:

Depositary FHSA: Holds liquid assets like cash or guaranteed investment certificates (GICs).
Trusteed FHSA: Managed by a trust company and can include investments like bonds and mutual funds.
Insured FHSA: Operates under an annuity contract with a licensed provider, focusing on insured products.

Eligibility Requirements for the FHSA

Age Limit: Individuals must be between 18 and 71 years old.
The age requirement adjusts to 19 in provinces where this is the legal age for entering contracts.
Residency: Applicants must be residents of Canada to take advantage of the FHSA’s benefits.

First-Time Homebuyer Status

Applicants must not have owned a home used as their principal residence in the current year or in any of the previous four years.
This applies to both individually owned or jointly owned homes with a spouse or common-law partner.

Additional Criteria

If applicants are married or in a common-law relationship, they must meet the first-time homebuyer criteria independently.
A spouse or partner’s home ownership will not disqualify applicants if they meet the eligibility requirements on their own.

Contribution Limits and Tax Benefits of the FHSA

The FHSA allows individuals to contribute up to $8,000 annually, boosting savings efforts.
If the annual contribution limit is not reached, unused room can be carried forward to subsequent years.

Lifetime Contribution Limits

Over the lifetime of the FHSA, an individual can contribute a total of $40,000.
This cumulative limit provides long-term support for saving toward a home purchase.
Contributions can be spread out over a longer period to suit personal financial situations.

Tax Benefits

Contributions to an FHSA are tax-deductible, lowering the contributor’s taxable income for the year.
For example, if an individual contributes the full $8,000, this amount is deducted from their taxable income, potentially reducing their tax liability.

Government Matching Contributions

The government offers a 25% matching contribution, up to $10,000.
For every $4,000 contributed, the government adds $1,000, enhancing the savings potential and providing “free money” to help first-time homebuyers.

Steps to Open an FHSA in Canada

Verify Eligibility: Ensure you meet the age, residency, and first-time homebuyer requirements.
Select a Financial Institution: Choose a bank, credit union, trust company, or insurance provider that offers FHSAs.
Review Services and Fees: Compare different issuers for services, fees, and investment options.
Collect Necessary Documents: Include your Social Insurance Number (SIN) and proof of birth.
Complete Application: Provide all required documents to verify eligibility.
Choose a Beneficiary: Designate a beneficiary to receive the account balance in case of your death.
Begin Contributions: Start contributing up to $8,000 annually to maximize savings potential.
Report on Taxes: Use Schedule 15 to report contributions and activities on your income tax return, even if no contributions are made.
Consider Self-Directed FHSAs: If preferred, set up a self-directed FHSA to manage investments directly.

By following these steps, you can open an FHSA and start saving for your first home while enjoying the tax benefits and government matching contributions.

Conclusion

The First Home Savings Account (FHSA) is a valuable tool for first-time homebuyers, offering substantial tax benefits, government matching contributions, and flexible contribution limits.