After much anticipation, we now offer the First Home Savings Account (FHSA) to clients – just in time to make this year’s tax-deductible contribution or simply to get the ball rolling as unused contribution room is carried forward into the next year. The account combines the tax deductibility of RRSP contributions with the tax-sheltered growth of a TFSA—the best of both worlds. Contributions to the FHSA are limited to $8,000 a year, and there is a lifetime contribution limit of $40,000. The account may remain open for a maximum of 15 years, and any money in the FHSA not used to buy a home can be transferred tax-free to an RRSP without affecting the RRSP’s contribution room. 

While this account may not be for everyone, it may be of special interest to those looking to help their children or grandchildren save for the purchase of a home. We hope to have a more definitive date in the coming months, but in the meantime, do not hesitate to reach out if you have any questions about using the FHSA to help reach your financial goals.

resp changes and tax-efficient drawdowns

In the 2023 federal budget, the maximum withdrawal of education assistance payments (EAPs) from RESPs within the first 13 weeks of enrollment was increased to $8,000 for full-time students and $4,000 for part-time students. EAP is the portion of a RESP that includes investment gains, income, and grants and is taxable to the student as income when withdrawn. Portions of the withdrawal attributed to contributions, rather than investment growth or investment income, are non-taxable. With the significant increase in the EAP limit (previously $5,000 for full-time students and $2,500 for part-time students), there are different withdrawal strategies that can be utilized to help ensure that RESP drawdowns are done in the most tax-efficient manner possible. 

the working student

Generally, tuition tax credits and the basic personal income amount lower a student’s tax bill so that they pay little to nothing at tax time. However, there are special considerations for students who have worked significantly prior to starting their program or have other forms of income. With the increase in allowable EAP withdrawals, these students can be left with a much larger tax bill, but there are some ways for them to get the most out of their RESP over the life of the account. Large lump sum RESP withdrawals at the start of a program are detrimental for these students; a more tax-efficient strategy is to lower withdrawal amounts at the start of the program and increase withdrawals later when their income is lower. For those who expect to record very little employment income when starting their studies, the opposite can be true, allowing for more equalized payments from the account. 

dealing with a large resp

For a student with a large RESP, it may be more advantageous to make larger RESP withdrawals over the life of the account. Any balance left in the RESP at the end of the program must be withdrawn, which can lead to a larger tax bill for the student as they enter the job market. The taxation of the remainder of the account is why RESP planning is important in determining the most tax-efficient withdrawal amounts. In an instance where a RESP is significantly large, it may be beneficial for the student to make larger withdrawals in school while their employment income is minimal and to leave a smaller residual in the account at the end of their program.

If you have any questions regarding the RESP changes or would like assistance with tax-efficient withdrawal planning, please contact us.


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