10 Comments

  1. Jaro Bucko on March 14, 2024 at 12:41 AM

    Hello Ed! This is a great summary of the FHSA opportunity. I wish I found it earlier. If you can, please answer my questions. I will reach 71 years of age this year in August 2024. My wife, our son, and I have purchased a building lot and are in the process of building a house on it. We are hoping to complete the build by November of next year (looks like we need to finish it before Oct 1). My wife is 55 years old.

    Can I still open an FHSA account and utilize at least the $8000 contribution? When would I have to close the FHSA account? Before my birthday in August or by the end of the year?

    Thank you in advance! Jaro



  2. Ed Rempel on June 12, 2023 at 11:58 PM

    Hi Richard,

    I like your creative thinking. There are all kinds of creative ideas with FHSAs.

    Your idea of maximizing the FHSA & then transferring to RRSP after 15 years is a great idea if your marginal tax rate is over 20%. The higher your marginal tax rate, the better it works for you.

    If your marginal tax bracket is 20% or less (income below $50,000), then you will almost for sure pay the same or higher taxes when you withdraw after you retire. 20% is the lowest tax bracket. Retirees have many government benefits clawed back based on your income.

    If you contribute and get a 20% refund, but then withdraw after retirement paying 20% tax plus losing some government benefits, then you would have been better off focusing on TFSA and then non-registered. You can invest non-registered investments tax-efficiently and you pay lower tax rates on capital gains (especially deferred capital gains) and Canadian dividends. If you earn capital gains or dividends in your RRSP, you end up paying full tax on them eventually when you withdraw from your RRSP.

    If you buy a home, you don’t have to withdraw from your FHSA, but it is best to withdraw. It’s a tax-free withdrawal. If you leave it in, you will pay tax on the withdrawal in the future. You can invest this withdrawal in your TFSA or in tax-efficient non-registered investments and will almost definitely be better off.

    If you own a home but sell it, you become a first-time home buyer again after 5 years. You can get it back! You can then withdraw tax-free.

    You said you modelled leaving money in your RRSP instead of withdrawing tax-free. Your model depends on the assumptions you make. If you assume you withdraw tax-free and then invest in TFSA or tax-efficiently in non-registered investments, that will almost definitely be better for you.

    Ed



  3. Ed Rempel on June 12, 2023 at 11:18 PM

    Hi Geoff.

    Good strategy. It works.

    Ed



  4. Richard on April 18, 2023 at 1:06 PM

    Hello Ed,
    Thanks all the great articles. I’ve tried to model filling the FHSA and never using the money to buy a house and then transfer it to an RRSP after 15 years. Seems like the best strategy if marginal tax rate is under 30%, isn’t it? I think we’re allowed not to use the FHSA when buying a house. How does it work if we’re not a first time home buyer anymore while filling the FHSA? Can we buy a house, then sell it, then become a first time home buyer at the end of those 15 years to take the money out tax free? Even then, creating new RRSP room might be the best strategy.

    Thanks!



  5. Geoff on April 11, 2023 at 4:08 PM

    Hi Ed, I’m planning on permanently leaving Canada before the 15 years are up. Can I transfer the total accumulated FHSA amount to my RRSP BEFORE the 15 years are up? Ideally I’d like to maximize the 5 years (40k), transfer them to my RRSP after those 5 years.



  6. Ed Rempel on April 8, 2023 at 10:59 PM

    Hi PTsigane,

    If you are a homeowner, you can’t open an FHSA. If you don’t own a home, it is the most beneficial place to invest for almost everyone.

    You get a free $40,000 contribution room that is tax deductible. If you don’t buy a home, you can merge it tax-free into your RRSP.

    Ed



  7. Ed Rempel on April 8, 2023 at 7:42 PM

    Hi Ovidiu,

    Tax on Split Income (TOSI) rules are complex with a bunch of exemptions. You need to have your corporate accountant that knows all the details about your situation advise on it.

    In general, I agree that the parents may be in a lower tax bracket than their child, if the TOSI rules apply.

    If the parents gift the money to the child to contribute to an FHSA, the child probably can’t use the tax deduction, but can carry it forward indefinitely until he/she earns enough income to make the deduction worthwhile. In general, it’s best to carry the tax deduction forward until your taxable income is over $50,000.

    Ed



  8. PTsigane on March 25, 2023 at 7:42 PM

    Hi Ed,
    Did I understand this well? Even as a homeowner who’s maximized his RRSP, you recommend opening a FHSA to get an extra 40K$ of tax sheltered investments, even if I don’t plan on buying a house at the moment? That would give me 15 years of tax deferred growth that I would have to take out and pay tax on after this delay, hopefully at a lower tax rate.
    Thanks for the tip,
    PTsigane



  9. Ovidiu on March 18, 2023 at 11:21 AM

    Hi Ed,

    I should have slept on my “sparkling” idea :D. Have finally realized myself the flaws of the post I had written in the spur of the moment:
    1. Dividend gross up is actually 15% for non-eligible dividends
    2. TOSI is maximally applied on the gross-up dividend (53.31%), whereas any calculated tax refund would be way lower since we’re talking about the lowest possible tax bracket for our student.

    The parents themselves could get a higher tax return by using appropriate techniques and simply gift the amount to child. Bottom line, what I was suggesting in my previous post doesn’t make sense at all.

    Thank you for any additional comments you might have!



  10. Ovidiu on March 16, 2023 at 7:55 PM

    Hi Ed,
    It’s been years I am following your very interesting and unconventional wisdom! I’ve just had the chance to watch your latest (today) Youtube video about the new FHSA. Great work as usual, plenty of useful info and ideas!
    Your video triggered immediately the following “spark” in my head and I would need your take on its pertinence and feasibility as I am not a CPA or FP.
    My idea is regarding an 8 000 $ dividend distribution to the child from the parent’s SB corporation, in order to contribute to the new FHSA. Provided that the child is still a student and has close to none additional income as well as considering the horrific TOSI tax of 53.31 % (QC+FED), would the math described by you still apply in essence?
    Does the new FHSA legislation have any provisions that would negatively impact us from this scenario? If not, the punitive TOSI pertaining income split would be an advantage as it triggers in theory a higher tax return: taxable dividend 11 040 $ (8000 $ x 1.38 gross-up) would generate a 5 855 $ tax return.
    Another advantage would be that the dividend payed in 2023 is declared in the 2024 personal tax statement so we could think about laddering the dividend payouts in a more efficient manner.
    Thank you in advance for either validating or “obliterating” 😀 the above considerations! It’s well worth the question!



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