The First Home Ownership Savings Account Called ‘Voter Candy For Millennials’ By Mortgage Insider

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Housing affordability has been a recurring theme in this election campaign, but when it comes to the proposals that have been put forward to address it, it is the one that has generated the most debate.

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Last month, the Liberal Party proposed a new tax-free Premier Home Savings Account (FHSA) that would allow people under the age of 40 to save up to $ 40,000 and withdraw them free of charge. ‘tax without obligation to repay funds.

The accounts combine the benefits of a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA), but despite the additional $ 40,000 in protected savings and the tax deductibility of deposits, not everyone is convinced that the FHSA will help a significant number of young Canadians enter the housing market.

This thing seems like a candy to millennial voters, it’s pretty redundant

Rob McLister of RatesDotCa

“I don’t know how beneficial (FHSA) it will be for a lot of young people who are struggling to save to buy a home in the first place,” said Jason Heath, financial planner and managing director. at Objective Financial Partners.

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Heath said paying less tax is a good thing and described the tax refund component as “slightly beneficial,” but noted the scale of the savings would run into the hundreds if not thousands of dollars.

“It hardly puts a dent,” said Heath, of the cost of market entry.

While Heath sees some advantages in it, others see the FHSA as a purely political maneuver.

“ This thing seems like a treat to Millennials to voters, it’s pretty redundant, ”said Rob McLister, Mortgage Editor at RatesDotCa.

McLister said there are already two federal savings programs that can be used to save for a down payment.

Canadians already have the option of withdrawing up to $ 35,000 from their RRSPs without penalty through the Home Buyers’ Plan, but most do not take advantage of it. In 2020, about 110,000 people withdrew funds from an RRSP account under the Home Buyers’ Plan, according to an email from the Canada Revenue Agency. Of these people, only 17,000 withdrew the full $ 35,000.

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The other federal program is the TFSA, which allows people to generate tax-free income that can be withdrawn without any conditions, for any purpose, including a down payment.

Jason Pereira, Partner and Senior Financial Planner at Woodgate Financial, also questioned the need for additional savings space.

With $ 35,000 in HBP room and the cumulative TFSA limit of $ 75,500, he said homebuyers already have room in existing savings vehicles to rack up over $ 110,000.

“Are we really saying the problem here was that people couldn’t save another $ 40,000?” Pereira said.

McLister and Pereira both suggested that any additional saving space could be managed in existing vehicles.

Pereira said if the FHSA was meant to be deductible and non-taxable, you could have simply increased everyone’s RRSP entitlement by $ 40,000 and created a secondary version of the Home Buyers’ Plan without the need for a repayment. . If it hadn’t been tax deductible, you could have used the TFSA and added $ 40,000 up, he said.

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But as Heath notes, most people saving for a home haven’t reached their TFSA maximum.

This means, in his view, that the FHSA would likely benefit high-income people – or the children of high-income people the most.

While the Liberals are the only party to offer dedicated savings accounts, the other major parties have also announced measures to address housing affordability.

The Conservative Party has said it will fix the problem by banning foreign investors from buying a home if they do not live or move to Canada. The party also said it would build a million homes over the next three years and create incentives for first-time homebuyers.

The New Democratic Party has said it will create at least 500,000 affordable housing units over the next 10 years, more than half of which will be completed within five years. The NDP has also said it will encourage the construction of affordable housing by waiving the federal portion of the GST and HST on projects to build new affordable rental housing.