Tax-Free First Home Savings Accounts
The PBO estimates that First Home Savings Accounts will reduce Personal Income Tax revenue by approximately $0.8 billion each year of operation.
Creating Tax-Free First Home Savings Accounts (FHSA), a registered account intended to help individuals save for their first home. Contributions to an FHSA would be tax deductible. Income earned in a FHSA would not be subject to tax, nor would withdrawals from an FHSA made to purchase a first home.[^1]
- Estimates are presented on an accruals basis as would appear in the budget and public accounts.
- Positive numbers subtract from the budgetary balance, negative numbers contribute to the budget balance.
- PIT revenue losses due to forgone Home Buyer’s Plan repayments and defaults occur between 2 and 17 years following the associated home purchase. These revenue losses are not recognized until they occur.
All Personal Income Tax revenue impacts were calculated by multiplying an expected change in tax deductible savings account contributions by estimated marginal income tax rates.
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Substitution of FHSAs for RRSPs: This reduction in RRSP contributions and increase in FHSA contributions was estimated based on annual Home Buyer’s Plan withdrawals.
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Forgone Home Buyer’s Plan (HBP) Repayments and Defaults: This was estimated based on annual HBP withdrawals, allocated across years 2 to 17 following the home purchase.
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Substitution of FHSAs for Other Investments: The increase in tax-deductible contributions and forgone interest was estimated based on the number and distribution of down-payments by first-time homebuyers, up to the $40,000 FHSA contribution limit and deducting HBP withdrawals.
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Use of additional contribution room by future homebuyers: This increase in total tax-deductible savings account contributions was estimated based on the number of individuals making contributions above, at, or near to their RRSP contribution limit.
Cost projections are adjusted for expected inflation and population growth.
The main sources of uncertainty are the number of first-time home buyers, their deposits for their home purchases, and the extent to which they will use FHSA to save the deposit for that first-home purchase. There is also uncertainty regarding the extent to which additional savings account contribution room will be used.