Tax Savings - What Canadian Real Estate Agents Recommend to their Children

Dated: November 5 2023

Views: 127

Best Option for Tax Savings for First Time Home Buyers 

This blog and video came about mainly surrounding the advice I am giving my 19 year old daughter. I am writing this after I made another video with Phil Jungworth trying to get more of a gauge on a quick guide on what people can afford (that blog will also be coming soon), but the point is that this new generation is going to need all the help they can get to be able to afford buying a home.

Last year the Canadian government released the FHSA. Which stands for First Time Home Savings Account. This can still be used together with using money from your RRSP and you can come back and see the information on using RRSP money and how that works for First Time Home Buyers here: https://rem.ax/3Qo8XTa

For my daughter she is eager to walk in my footsteps. Her current plan is to buy a 3 bedroom townhouse and have a few friends rent rooms and cover her expenses so that she can live for free. So at the moment she is putting as much as she can into an FHSA (expecting to hit the max $8,000 per year. This not only saves her the pressure of acting like most people her age and spending money on things that wouod not be considered investments by anyone's standards, it also is expected to be an asset to help her future where ever that may take her.

Deduct What You put into the Account from your Taxable Earnings for the Year 

The FHSA acts in the same way as the RRSP in that the government allows you to deduct the amount you put in against your earnings for the year. For example if you made $48,000 during the year and you put $8,000 into the FHSA then the government subtracts the $8,000 from your taxable income.  This means that you are not taxed on the $8,000 plus you reduced your taxable income so hopefully this can bring you down a tax bracket and the rest of the money you made will be taxed in a lower tax bracket as well.

Invest and Not Pay Taxes on your Earnings

The FHSA also acts in the same way as a Tax Free Savings Account (TFSA) in that you don't pay taxes on the interest or earnings that you make inside of the FHSA account. That means that if you invest in stocks or any other available investments from the account and make money, that money is not taxed. 

Of course benefits are reversed by Revenue Canada if you do not use the money to buy your first home.

Using a Low Fee Trading Platform

A good option for opening an FHSA is Questrade.

I am not an affiliate by any means but I think that using the low fee stock trading platforms is usually smart if you have are somewhat knowledgable.

I have found that most of the major banks tend to kill you with fees when you trade or make investments with them. At the moment Questrade is the only low fee platform in Canada that offers the FHSA account to trade/buy stocks from. Here is the link to Questrade: https://rem.ax/3skhWg1 . (From that page, choose FHSA)

If you end up getting a Questrade account and want to use my daughter's referral code, the code is: 566531184468069

I am fairly sure it does not give you an added benefit but costs you nothing if you use this when signing up.

Who can Benefit/Open a First Home Savings Account (FHSA)?

To create an FHSA, you must:

  1. Be aged between 18 and 71.
  2. Be a current Canadian tax resident.
  3. Not have resided in a property owned by you or your partner during the present calendar year or any of the preceding 4 calendar years.

Other Points to Consider

  1. The annual contribution cap is $8,000, and any unused contributions can be carried forward to the next year. So, that means if you put in $6,000 this year that means you can put in $10,000 next year.
  2. The lifetime contribution limit is $40,000.
  3. Annual contributions are eligible for tax deductions when you file your income tax, similar to the process for an RRSP (Registered Retirement Savings Plan). But the difference is that you don't need to pay it back like in the case of using RRSP money it needs to be paid back within 15 years. With the FHSA you can just use the money when you buy your first home and then the account is finished and then closed.

Why are People in Edmonton Special?

Naturally they have Derek Keet there to help them buy and sell real estate.  

I'm half joking...

As it pertains to the FHSA, having a $8000 a year and $40,000 a year limit seems to be set based on the Toronto/Vancouver prices and my feeling is that the government would never had given this high of a limit for First Time Home Buyers to use if this account was only made for Edmonton.  So with Edmonton being having the lowest priced housing for a big city in Canada this is especially advantagous for First time home buyers in Edmonton.

It is always a good idea to contact your financial advisor and make decisions that will be best for your family.  I hope that this can make you think and take advantage of what you can though.

When you or your family are ready to invest into your first home, feel free to reach out.

Derek Keet

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Derek Keet

Think RE/MAX Elite, think Derek Keet. With over 20 years of personal experience in residential, commercial, and rural transactions, Derek is an accomplished international business leader who brings ....

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