Fiscal and Financial Planning Guide 2024-2025

Future owners > Tax-Free First Home Saving Account (TFFHSA)

As mentioned in the Income Tax News section, this new measure in force 2023 will certainly be of interest to future owners.

Conditions to be met when opening the TFFHSA

In order to be eligible to open a TFFHSA, an individual must meet the following conditions:

  • Aged 18 to 71
  • Not having lived in a home owned by him or his or her spouse in the year of purchase and in the previous four years
  • Be a Canadian resident

In addition, a second eligibility test applies at the time of withdrawal from the TFSA, but this applies only to the TFSA holder and not to the spouse.

This means that a person who has already opened a TFSA and is moving into the home of a new spouse could continue to contribute to his or her TFSA and possibly use it to acquire an interest in the spouse’s home.

Eligible dwellings are the same as for the HBP.

Deductible contributions

The annual contribution limit to the TFFHSA is $8,000 regardless of income and the lifetime contribution limit is $40,000. TFFHSA contributions are tax deductible in the calendar year in which they are made, as opposed to RRSP contributions that can also be made within 60 days following the current year (i.e. January, February).

TFFHSA contributions are independent of RRSP contributions. This means you can contribute to both the RRSP and the TFFHSA.

It is not obligatory to claim the deduction in the year the contribution is made. It may be deducted for example in a subsequent year at a higher tax rate if one anticipate an increase of income.

On the other hand, if an individual does not contribute in a year, he or she will be able to contribute and deduct that contribution in a future year, but up to a maximum carry-forward cumulative of only $8,000.

Contributions made in excess of allowable limits are subject to a monthly penalty of 1%.

Withdrawals

Withdrawals from the TFFHSA are not taxable when they are used to purchase a first home that an individual will occupy as his principal place of home.

Withdrawals can begin when an agreement is reached for the purchase or construction of a home before October 1st of the following year and no later than 30 days after the new owner move to the new home.

Maximum duration

The TFFHSA ends with the first following event:

  • At the end of the year following the withdrawal
  • 15 years after the TFSA was set up. If a home is not purchased, the funds can be transferred to an RRSP
  • At age 71. As in the previous case, accumulated funds can be transferred to the RRSP

TFFHSA or Home Buyer’s Plan (HBP)?

It is possible to use both the TFFHSA and the HBP for the acquisition of a first home.

The savings potential for a young couple looking to acquire a home could therefore be as high as $200,000. 

Taking into account the possibility of contributing $40,000, the tax-advantaged savings potential for a first-time homebuyer is $200,000.

As a general rule, future homeowners should prioritize annual contribution of $8,000 to a TFFHSA over RRSP contributions given the minimum 5-year period required to reach the TFFHSA limit of $40,000.

Contributions to the RRSP in order to benefit from the HBP could be made later, even up to 90 days before the purchase of the first residence.

Many parents would like to help their children aged 18 or over buy their first home by contributing to their TFSA. However, it’s difficult to determine at what age a child will buy his or her first home. The following two points may help determine the best time to start making contributions.

  • The maximum lifespan of a TFFHSA is 15 years (after which time, accumulated funds are transferred to an RRSP if no home has been purchased).
  • In Canada, the average age of first-time homebuyers is 36.

Therefore, it may be advantageous to start early in order to be able to contribute the 5 years required to maximized the TFFHSA, but not too early so as not to lose the advantage of being able to withdraw the funds from the TFFHSA tax-free if the home is not purchased within the 15-year period.

Separation or divorce

Unlike the HBP, it is not possible to open a new TFSAPP in the event of separation or divorce.

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