Canada's First Home Savings Account Has Launched; Why Aren't Some Banks Offering It Yet?
Only one place in Canada was ready for the rollout April 1.
The bank towers in the downtown Toronto skyline. Right: A "for sale" sign in front of a house.
The First Home Savings Account (FHSA) was first announced as part of Canada's 2022 federal budget. Touted as a new way for Canadians to supercharge their savings ahead of making their starter home purchase, the FHSA cribs elements from savings accounts already familiar to entry-level investors, like the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP).
One of the distinct differences is that the FHSA has an annual contribution limit of $8,000 and a lifetime limit of $40,000. Any capital gains on the investments held within the FHSA — like stocks, bonds or just plain old cash — would grow tax-free during the duration of the account's existence. The account holder could then withdraw that cash to use toward the purchase of their first home.
However, unlike the TFSA, an FHSA closes after December 31 in the year of either the 15th anniversary of the account being opened or when the account holder turns 71. Basically, if you haven't tapped into your FHSA to buy your first home by the earliest of those two cutoff dates, the funds in that account must be transferred on a tax-free basis to an RRSP or a Registered Retirement Income Fund (RRIF).
Additionally, contrary to the feds' initial announcement, prospective homeowners will be able to combine the benefits of both the FHSA and the Home Buyers' Plan (HBP) toward one home purchase. There are obviously also a handful of caveats specific to being a first-time homebuyer but that's the gist of it.
And yet, despite the considerable advance notice of the government's decision to offer the FHSA, only one financial institution was actually ready to offer the new savings account on the official April 1 launch date.
Questrade, the independent digital trading platform that boomed in popularity with investors stuck inside during the early years of the COVID-19 pandemic, was able to beat Canada's largest financial institutions to the starting line.
Apparently, the difference maker for Questrade was simply being proactive.
"We pretty much went to work when we first when it was first announced," Questrade CEO Edward Kholodenko told Narcity in a phone interview earlier this month. "Even before the (2022) budget, there were some pre-announcements that the First Home Savings Account was going to be launched. And so we started looking into how we could enable that on our platforms very early on.
"Once we had more technical details around it, then we really started pulling into high gear and mobilizing all of our internal resources to make sure that we were we were out on time. We wanted to be out on time on the first date available."
Kholodenko said the similarity between the FHSA and previously existing accounts helped smooth over the logistical elements on the backend.
"We've got lots of experience in dealing with this type of account," Kholodenko said. "Perhaps it's a nod to our systems that are perhaps maybe more flexible than other ones. We worked with some of the backend providers to be to make sure that they were ready on time; everybody was ready on time and ready to go."
For their part, the Canada Revenue Agency says that Canadian banks and brokerages have had the necessary information for applying for FHSA approval since February.
"To date, the Canada Revenue Agency (CRA) has provided financial institutions with the materials they need," the agency told Narcity in a statement. "The CRA is working diligently with financial institutions to ensure that their applications comply with the Income Tax Act as well as with CRA’s administrative rules."
To date, none of the "Big Five" banks have provided a firm date for when their FHSA product will be available.
In separate statements to Narcity, spokespersons for TD Canada Trust, the Bank of Montreal and Scotiabank indicated FHSAs would be available at their respective institutions at some point during the 2023 tax year. A Royal Bank representative said they planned to launch their FHSA "soon"; RBC's website indicates a spring 2023 release target.
A representative of CIBC did not respond to Narcity's inquiry by the time of publishing. However, their website also only offers a vague 2023 release for the FHSA product.