What you should know about Canada's new tax-free home savings account

The Liberal government revealed its 2022 federal budget on Thursday, which included a plan to spend $10 billion on housing affordability over the next five years.

One of the new measures announced will hopefully help Canadians save for a down payment to buy their first home.

The federal government introduced the Tax-Free First Home Savings Account (FHSA) under the robust housing plan, which will be available to use starting next year.

How does it work?

The FHSA aims to help young people save to buy a home amid rising home prices.

It would give prospective first-time home buyers the ability to save up to $40,000 for a down payment for a home. Similarly to an RRSP, contributions to the savings account would be tax-deductible. Withdrawals to buy your first home would be non-taxable like a TFSA.

“Tax-free in, tax-free out,” reads the budget.

The annual maximum contribution to the account is $8,000 per year. The government is estimating that the FHSA would provide $725 million in support over five years.

Will it really help you afford a home?

Critics are saying the FHSA will not solve housing affordability.

With Canada’s surging inflation rate comes a continued hike in home prices. For example, a new report found that the average selling price of a property in Toronto is now at $1,299,894. In February, the average price for a home in Canada hit a new record high of $748,450, up 21% year-over-year.

On top of that, the overall cost of living has risen, with Canadians having to shell out more for gas, food, and appliances since January.

Jason Pereira, president of the financial planning association of Canada, shared a Twitter thread on how “misguided” the new savings account is.

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