That gift

What if there were a way to take a few investments you possess, flip them into a special account, write that whole amount off your taxable income, make the investment grow without incurring any tax, then spend the money whenever you wanted with being taxed? Maybe buy something that would appreciate in value, tax-free?

Too good to be true?

Nah. Not in Chrystia’s Canada, where a dodgy government has created the mother of all tax shelters. Have your cake. Eat it, too. Get seconds.

The FHSA (First Home Savings Plan) is nothing less than outrageous. It’s faster than a speeding RRSP. More powerful than an TFSA. Able to leap off… well.. you get it. This is a total sop to the young and the houseless, giving them a financial tool that Boomers and GenXers could only have dreamed of in their moister days.

It’s been two full years now that this thing has been around. Astonishingly, only 5% of Canadians have opened one. Just one in eight of those under the age of 30 have started a FHSA, with others missing the boat on a goodie that maybe too sweet to last.

You probably know the deets. Eight grand a year can be contributed, to a max of $40,000 – but growth within the plan is totally unlimited and completely free of tax. Like shovelling money into an RRSP, these contributions are then deductible from taxable income. Woo-hoo. But, like a TFSA, there’s no withholding tax when you take the funds out – presumably for a downpayment.

The money inside a FHSA can be invested in the same stuff that goes into a retirement or tax-free savings plan, and hopefully that will be growthy ETFs. Contributions also carry-over for one year, so if you miss putting funds in during 2024 you can double the contribution in 2025. (But a plan must be opened to earn the annual allotment.)

And, of course, you don’t need actual cash to make a contribution.

A ‘contribution in kind’ means taking stuff you already own – perhaps in a non-registered account – and just transferring it into a FHSA. Suddenly you get a tax refund for selling yourself assets that you already owned. Thanks, Chrystia.

Or borrow it. The loan interest will not be deductible, but by making the FHSA payment you’ll receive a tax refund that can be used to pay the borrowing down. Yup, Ottawa is retiring a hunk of that loan, so your net worth ups.

To lay claim to this ridiculous offer, you must be between the ages of 18 and a hip replacement, and have not owned real estate in the past five years. A spouse or common-law partner who owns will make you ineligible. Choose wisely.

The idea of this is to make it easier to save for a downpayment. To that end, kiddos can also access the HBP – Home Buyer’s Plan. This allows for a $60,000 withdrawal from an RRSP (double that for a couple) to buy a house. It need not be repaid into the retirement plan for 15 years, with a grace period of several years before the initial payment.

Plus, young hearts, there’s more. Thirty-year-long amortizations will become available to all first-time buyers in 12 days. That’s also when the CMHC price cap explodes to $1.5 million . Then a far more expensive property can be had with a 60% lower downpayment. Yes, you’ll have extra debt and pay more interest, but you’ll also get a big mortgage, utility bills, hefty insurance premiums, rising property taxes, maintenance costs, raccoons, condo fees, maybe a meth lab next door and indentured immobility. This is called ‘adulting’. Enjoy.

But if you don’t have a house and never buy one, the FHSA funds (plus all growth therein) can be rolled into a registered retirement plan. So, yup, this is like getting an extra $40,000 (or more) in RRSP room. That’s a gift. Take it.

About the picture: “Many moons ago I emailed you asking that we have a D-day, not the Normandy one but the dog one,” writes Jeff. “And you did. It was inspired by this guy and yours. He is getting up there in years now as am I. I just wanted you to see this picture, he is more stoic than ever. Not much phases him anymore and maybe we should all step back and take a lesson from that.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/12/03/that-gift/