Principal Issues: Whether an individual, holder of a FHSA, may make a qualifying withdrawal if he acquires a qualifying home, jointly with one or more other persons.
Position: Likely yes.
Reasons: Paragraph (c) of the definition of "qualifying withdrawal" requires that the individual entered into an agreement in writing for the acquisition of the qualifying home. That condition is met even though the individual acquires the qualifying home jointly with one or more other persons.
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 3 NOVEMBER 2023
2023 APFF CONFERENCE
3. FHSA - Purchase of a share of a qualifying home and qualifying withdrawal
Bruno lives in Quebec and satisfies all the conditions for opening a First Home Savings Account (“FHSA”). He opened an FHSA account on May 15, 2023, and contributed $8,000. He has never owned a home.
Bruno and two of his friends signed an offer to purchase on September 15, 2023, to buy a duplex in equal shares. Only Bruno will live in one of the two units in the duplex as his principal place of residence, whereas the other unit will be rented out.
The offer to purchase stipulated that the date of possession of the duplex will be December 10, 2023.
On November 1, 2023, Bruno completed Form RC725 (footnote 1) to make a qualifying withdrawal from his FHSA. He wanted to withdraw his entire FHSA. He went to his financial institution and gave them the form to process the withdrawal. The withdrawal was made on November 2, 2023.
Bruno purchased the house on December 10, 2023, and began living in one of the units in the duplex as his principal place of residence on December 20, 2023.
Questions for the CRA
(a) Given that Bruno only purchased a share of the duplex, will he be considered for purposes of the definition of “qualifying withdrawal” in subsection 146.6(1) of the Income Tax Act (footnote 2) to have acquired a "qualifying home" as defined in subsection 146.6(1) if all the conditions set out in that section for making a qualifying withdrawal are otherwise satisfied?
This question arises because, for the purposes of the Home Buyers' Plan (“HBP”), subsection 146.01(2) provides certain deeming rules that apply in determining whether the conditions for benefiting from a non-taxable registered retirement savings plan ("RRSP") withdrawal have been met. For the purposes of the HBP, paragraph 146.01(2)(a) specifically provides that the acquisition of a qualifying home includes the acquisition by a taxpayer "jointly with one or more other persons" (footnote 3). However, we do not find such a deeming rule for FHSA purposes. Furthermore, in the definition of "qualifying withdrawal" in subsection 146.6(1), there is a specific reference to one of the HBP special rules, namely, paragraph 146.01(2)(a.1), but no reference to paragraph 146.01(2)(a).
We are also aware that the rules applicable to the HBP and the FHSA, while having certain similarities, also have a number of differences.
(b) Would the answer be the same if Bruno had purchased the duplex with only one friend in equal shares and each of them lived in one of the housing units as their principal place of residence, if all the other conditions for making a qualifying withdrawal were otherwise satisfied?
(c) Would the answer be the same if Bruno had purchased the duplex with his wife in equal shares and they were living in one of the housing units as their principal place of residence and the other housing unit was rented, if all the other conditions for making a qualifying withdrawal were otherwise satisfied?
(d) Would the answer be the same if Bruno had instead purchased a bungalow with his wife in equal shares and that they lived in as their principal place of residence, if all the other conditions for making a qualifying withdrawal were otherwise satisfied?
(e) Would the answer be the same if Bruno had instead purchased a condo with his father in equal shares and only Bruno lived in this condo as his principal place of residence, if all the other conditions for making a qualifying withdrawal were otherwise satisfied?
CRA Response
An individual who, while the holder of an FHSA, wishes to make a qualifying withdrawal from this account for the acquisition of a qualifying home, must ensure that the amount the individual will receive as a benefit meets the conditions described in the definition of "qualifying withdrawal" in subsection 146.6(1).
Those conditions can be summarized as follows:
- The withdrawal must be made as a result of the individual’s written request in prescribed form in which the individual sets out the location of a qualifying home that the individual has begun, or intends not later than one year after its acquisition by the individual to begin, using as a principal place of residence (paragraph (a)).
- The individual must be resident in Canada from the time of the withdrawal until the earlier of the acquisition of the qualifying home and the individual's death. In addition, the individual must not, during the four calendar years preceding the particular year in which the withdrawal is made, and the period of the particular year ending on the 31st day preceding the withdrawal, have occupied an owner-occupied home (paragraph b)).
- The individual must have (before the withdrawal) entered into an agreement in writing for the acquisition or construction of the qualifying home before October 1 of the calendar year following the calendar year in which the amount was received (paragraph c)).
- The individual must not have acquired the qualifying home more than 30 days before the withdrawal was made (paragraph d).
Given the various situations described, the question that arises is whether a taxpayer who acquires a qualifying home with one or more other persons is considered to be acquiring a qualifying home for the purposes of the definition of "qualifying withdrawal".
We note that Parliament did not deem it necessary, in the context of that definition, to specify that the acquisition of the qualifying home in question may also include a joint acquisition with one or more persons, for example by means of a general deeming rule, as was done in paragraph 146.01(2)(a), which provides a deeming rule applicable to all of section 146.01, in the context of the rules relating to the HBP.
The fact that an acquisition may also include a joint acquisition with one or more persons is specified in various places in the Income Tax Act, for example in section 146.01, referred to above. Similarly, the definition of "principal residence" in section 54 states that it is a residence “owned, whether jointly with another person or otherwise, … by the taxpayer”. Section 146.6 itself, in the context of the FHSA, specifies in paragraph (c) of the definition of "qualifying individual" that the individual must not, for a certain period of time, inhabit a qualifying home that was, among other things, “owned, whether jointly with another person or otherwise". Another such statement is introduced by the reference to paragraph 146.01(2)(a.1) in subparagraph (b)(ii) of the definition of "qualifying withdrawal". However, it is not clear, in our view, that the mere reference to the acquisition of a qualifying home in the context of the definition of "qualifying withdrawal" can exclude the possibility of an acquisition made by the individual jointly with one or more persons. The acquisition referred to a number of times in the definition of "qualifying withdrawal" in subsection 146.6(1) is first and foremost the acquisition described in greater detail in paragraph (c) of that definition, i.e., an acquisition of the qualifying home that is provided for in a written agreement to which the individual is a party, which does not exclude the possibility of an acquisition by the individual jointly with one or more persons.
Parliament's intention in introducing section 146.6 was to “help individuals save for their first home” (footnote 4). It seems clear that the legislator did not wish to exclude individuals who wish to purchase a qualifying home jointly with one or more persons, even if only for spousal couples (footnote 5).
Thus, in all the situations you have described, where Bruno is a party, along with one or more other persons, to a written agreement to acquire a property that is a qualifying home, and although Bruno is acquiring only a share of the ownership of that property, to the extent that the other conditions of the definition of "qualifying withdrawal" are otherwise satisfied, the CRA is of the view that the withdrawal made by Bruno could be a "qualifying withdrawal" for the purposes of section 146.6.
Michel Ostiguy
November 3, 2023
2023-097692
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 CANADA REVENUE AGENCY, Form RC725, "Request to Make a Qualifying Withdrawal from your FHSA” ("Form RC725").
2 R.S.C. 1985, c. 1 (5th Supp.) ("I.T.A.").
3 CANADA REVENUE AGENCY, Technical Interpretation 2017-0730991E5, April 30, 2018.
4 CANADA, Department of Finance, Budget 2022, Tax Measures: Supplementary Information, April 7, 2022, p. 4.
5 An illustration of this intention can be found in the example given in the Budget 2022, CANADA, Ministry of Finance, Budget 2022, A Plan to Grow Our Economy and Make Life More Affordable, April 2022, pp. 50-51. The Minister of Finance also used this example, in the information document "Making Housing More Affordable" (published in November 2022 on his website at the following address: https://www.canada.ca/en/department-finance/news/2022/11/making-housing-more-affordable.html, of a young couple, Matthew and Taryn, using the FHSA to buy their first home together