Ottawa announced a new tax-free First Home Savings Account (FHSA) in its 2022 federal budget earlier this month. But while the account aims to help more Canadians enter the housing market, most believe it will do little to help them purchase a home, a recent Hardbacon survey found.
The FHSA – expected to be introduced in 2023 – will assist home buyers with saving for a down payment on their first home. Younger Canadians between the ages of 18 and 40 can save up to $8,000 a year over five years for a total of $40,000.
The account will offer a tax deduction and tax-free withdrawals, combining the benefits of both retired registered savings plans (RRSPs) and tax-free savings accounts (TSFAs).
Yet, while a majority (70 per cent) of Canadians want to use the FHSA, most (72 per cent) think it won’t help them buy a home.
Skyrocketing home prices is one reason. Some (39 per cent) think the FHSA is unfair because it leaves out people who want to buy in more expensive markets.
The Canada Mortgage and Housing Corp. only allows a minimum down payment of $40,000 for a maximum purchase price of $650,000. In comparison, the average price of a home in Canada reached a record $816,720 in February.
Those who do plan to put money into the account next year are hoping to cut spending (32 per cent), decrease RRSP contributions (16 per cent), and reduce (12 per cent) or take money out (nine per cent) of their TFSA. Some (three per cent) also intend to take money out of their RRSP or reduce contributions to a Registered Education Savings Plan (two per cent).
Of the 30 per cent who don’t plan to use the savings tool, over half (54 per cent) don’t understand its advantages and the others (46 per cent) believe they won’t have enough money to contribute.
“The FHSA is a tax-free savings account, but it doesn’t mean that it actually makes saving for a down payment any easier, especially in hotter real estate markets,” Hardbacon’s editor-in-chief Stefani Balinsky said in a press release.
Still, the bulk of Canadians (88 per cent) want to become homeowners one day.
“What the survey found is that the most effective source of a down payment is the Bank of Mom and Dad. Still, not everyone is that fortunate,” said Balinsky.Source: financialpost.com