Principal Issues: (1) Can an individual who resides in a housing unit of which their spouse is the sole owner be a "qualifying individual" eligible to open a FHSA? (2) Can a FHSA holder who enters into a spousal or common law relationship with a home owner after opening the FHSA nevertheless make a "qualifying withdrawal" from their FHSA to purchase a housing unit in which both they and their spouse will reside?
Position: (1) No. (2) Yes.
Reasons: The "qualifying individual" definition in subsection 146.6(1) includes the condition that the taxpayer has not inhabited as a principal place of residence a housing unit that either the taxpayer or their spouse (or common law partner) at that time owns during the calendar year or the previous four calendar years. In contrast, the "qualifying withdrawal" definition does not consider the home ownership status of the FHSA holder's spouse or common law partner.
XXXXXXXXXX 2023-096054
April 12, 2023
Dear XXXXXXXXXX:
Re: First Home Savings Account
This is in reply to email inquiry dated December 31, 2022 in which you asked us if your spouse will be eligible to open a First Home Savings Account (“FHSA”) on April 1, 2023. You state that you own a townhouse in which your spouse has no ownership interest under a prenuptial agreement and that this home is your principal place of residence. You plan to sell your townhouse at some future date in order to acquire another home to be owned jointly by you and your spouse as a principal residence. At that time, your spouse would want to make a qualifying withdrawal from the FHSA.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (footnote 1) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.
An FHSA is a new registered plan designed to help prospective first-time home buyers save towards acquiring or building a qualifying home. The holder of the FHSA has an annual limit for contributions to their FHSAs, or transfers from their RRSPs to their FHSAs, of $8,000, and a lifetime FHSA limit of $40,000. Contributions made to an FHSA are generally tax deductible. Qualifying withdrawals from an FHSA are not included in the income of the FHSA holder for tax purposes.
Opening a FHSA
Only a qualifying individual can open a FHSA. A qualifying individual is an individual who is a resident of Canada, at least 18 years of age and a first-time home buyer. For purposes of opening an FHSA, an individual is considered to be a first-time home buyer if they did not, at any prior time in the calendar year in which the FHSA was opened or in the preceding four calendar years, live in a qualifying home (or what would be a qualifying home if it were located in Canada) as their principal place of residence that either they owned or jointly-owned, or their spouse or common-law partner owned or jointly-owned (if they have a spouse or common-law partner at the time the account is opened).
A qualifying home is any housing unit located in Canada or a share in a cooperative housing corporation that entitles the taxpayer to possess and have an equity interest in a housing unit located in Canada.
Qualifying withdrawals
An individual can make withdrawals from their FHSAs for any purpose but the tax treatment of the withdrawn amounts may change depending on the circumstances. An amount that is withdrawn to acquire or build a qualifying home is referred to as “qualifying withdrawal” and is excluded from the income of the individual for tax purposes.
In order for an FHSA withdrawal to be a qualifying withdrawal, certain conditions must be met. One of those conditions is that the individual must be a first-time home buyer at the time the withdrawal is made. It should be noted that the requirements for being considered a “first-time home buyer” for purposes of opening an FHSA are slightly different than for purposes of making a qualifying withdrawal. For purposes of making a qualifying withdrawal, a first-time home buyer is
- an individual who did not live in a qualifying home (or what would be a qualifying home if it were located in Canada)
- as their principal place of residence
- that they owned or jointly-owned
- at any time during the part of the calendar year before the withdrawal is made (except the 30 days immediately before the withdrawal) or at any time in the preceding four calendar years.
For purposes of this first-time home buyer requirement, the home ownership history of the individual’s spouse or common-law partner is not relevant.
Conclusion
One of the requirements for your spouse to be a qualifying individual is neither you nor your spouse can own or jointly own a home that you live as your principal place of residence from January 1, 2019 to April 1, 2023 (the date you wanted to open the FHSA). The fact that you currently own a home that you live in as your principal place of residence means that your spouse will not be a qualifying individual and therefore will not be eligible to open an FHSA on April 1, 2023. The fact that your spouse has no interest in your home under your prenuptial agreement does not change this result.
If you sell your home in 2023 and neither of you acquire or build a home, the earliest date that you or your spouse could open an FHSA is January 1, 2028. As of that date, you and your spouse would both be considered first-time home buyers for purposes of opening an FHSA. Assuming you each meet the other requirements to be a qualifying individual, you could both open FHSAs at that time.
We trust our comments will be of assistance.
Yours truly,
Helen Ferrigan
Acting Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 All legislative references in this letter are to the Income Tax Act (Canada).