The tax-free first home savings account (FHSA) will be at the centre of client conversations this fall as more financial institutions launch their accounts and clients look to benefit from the tax-planning attributes.
National Bank of Canada, Royal Bank of Canada (RBC) and Wealthsimple Inc. say they’ve opened tens of thousands of FHSAs, exceeding their expectations. Firms that launched FHSAs earlier than competitors say doing so has allowed them to deepen relationships with clients by providing would-be homebuyers with other advisory services and products.
“We rushed to offer the FHSA earlier because we didn’t want [clients] to get it anywhere else,” said Ali Fares, vice-president of investment strategies with National Bank of Canada in Montreal, which was the first of the Big Six banks to launch the FHSA in mid-April.
Fares said the head start allowed National Bank to attract new clients. Being early also allowed the firm to collect data about how clients use the account and to offer complementary products and services.
“Once you invest in the FHSA, there are multiple opportunities to give you advice because this is [a] life moment — you’re telling us you want to invest to buy a home,” Fares said. This can lead to conversations about retirement goals, saving for a child’s education and other financial planning needs.
Peter Bowen, vice-president of tax and retirement research with Fidelity Investments Canada ULC in Toronto, also said the uptake since Fidelity launched its FHSA in mid-April has exceeded expectations.
Some financial advisors with wealthy clients may conclude the FHSA doesn’t merit their attention, since the total lifetime contribution room of $40,000 is relatively modest and most affluent clients already own a home, Bowen said.
However, the accounts may be of interest to wealthy clients looking to help their adult children buy their first dwelling.
Wilmot George, vice-president and team lead of tax, retirement and estate planning with CI Global Asset Management in Toronto, said that in addition to lifelong renters and younger clients, a target market for the FHSA is clients looking to give money to their children and grandchildren.
CI Financial Corp. launched the FHSA for its CI Assante Wealth Management clients in August and expects to make the account available to clients of Aligned Capital Partners Inc. and CI Direct Investing this quarter.
The topic of the FHSA “can lead to some all-important estate planning conversations,” George said.
“It’s an opportunity to retain assets for an advisor, post-death, because you’re not only talking to grandparents and parents about gifting money to adult kids for investments in their FHSAs, but perhaps the kids are involved in that conversation,” he said, since they’re opening the accounts and claiming the tax deduction.
The accounts are proving popular with younger Canadians. RBC said 74% of its FHSAs were opened by clients aged 18–34, with a further 20% of accounts opened by clients aged 35–44, as of June 30.
Clients at Weathsimple rank saving for a home as second only to building retirement savings as their top financial goal, said Ben Reeves, chief investment officer with Wealthsimple in New York. The firm officially launched its FHSA in August after rolling it out on a test basis for wait-list clients.
Younger Canadians who are discouraged by the rising cost of buying a home and the difficulty of saving for a down payment are welcoming the new account, Reeves said.
“What we’re hearing from investors is that they really value the flexibility that the FHSA provides, where if you don’t end up buying a home, you’re able to [transfer it to your RRSP],” he said.
About 30% of Wealthsimple FHSA accountholders have maximized their $8,000 contribution for this year, and 65% opened their FHSA on Wealthsimple’s direct brokerage platform rather than on its robo platform, Reeves said.
Some clients who opened accounts this year made qualifying withdrawals shortly thereafter, looking to lock in the tax deduction on the contribution rather than seeking growth over time. However, most clients seem to be building savings.
“Based on questions I’m getting, and the conversations I’ve had with advisors, people are indeed using [the FHSA] toward that down payment to buy a house two or five or 10 years down the road,” Bowen said.
As the FHSA is the first new registered account since the introduction of the TFSA in 2009, clients will be curious about the plan’s features and rules, George said.
The new account “creates an opportunity [for advisors] to reach out to busy clients, or potential clients, with something new that might trigger interest and a return phone call where it might not have otherwise occurred,” George said.
Clients who are in the market to buy a home may want to discuss whether they should be contributing to an FHSA, to an RRSP to access the Home Buyers’ Plan, to their TFSA or to all of the above.
“Being knowledgeable in [the FHSA] space is important for financial institutions that want to offer that type of comprehensive, holistic planning for their families,” George said.
All about the FHSA
The FHSA is a registered account that allows first-time homebuyers to contribute $8,000 a year, and up to $40,000 over their lifetime, toward a down payment for a home.
Contributions to the account are tax-deductible and can be carried forward indefinitely. Withdrawals from the FHSA, including growth, are tax-free when used to buy a first home. The account can remain open for a maximum of 15 years. Any money in the FHSA not used to buy a home can be transferred to an RRSP, without affecting RRSP contribution room, or withdrawn on a taxable basis.
While the FHSA became effective April 1 by legislation, no firms except for Toronto-based Questrade Financial Group Inc. launched the account that day. Once legislation to implement the FHSA was passed in December, financial institutions ramped up efforts to get their back offices and systems ready to launch the account. By mid-August, the Canada Revenue Agency (CRA) had released eight FHSA forms to administer the account, including the FHSA T4 slip, but more forms are pending.
The CRA said that by the 2023 tax season, people will be able to determine their available FHSA participation room and other related information by consulting their CRA My Account page. “We anticipate FHSA-related information to be accessible on My Account by February 2024,” wrote Nina Ioussoupova, a spokesperson for the CRA, in an email.
As of press time, four of the Big Six banks had launched FHSAs: National Bank of Canada and Royal Bank of Canada launched in mid-April, while Bank of Nova Scotia and Toronto-Dominion Bank launched in August. CIBC said it planned to have the accounts ready in November; Bank of Montreal said its accounts would be ready by the end of this year.