September 8, 2023

How is the FHSA (First Home Savings Account) taxed at death?

At Spire Advisors of Assante Capital Management Ltd. we take a holistic approach to your financial planning, which means that we plan ahead – past lifetimes, when necessary – to ensure that optimal decisions are made today, in support of the best possible outcomes tomorrow. With the introduction of the tax-free First Home Savings Account, we can consider new options for first-time homebuyers to take advantage of over the course of their lives; and (although sad to think about) we must also consider the options and implications of the FHSA after death.

With the new FHSA, the account holder may designate a spouse or common-law partner to be their “successor holder” of the account. By doing this, the surviving spouse can transfer the account to their name without it affecting their own contribution limits. (Note: any other person would have to be named as the beneficiary.)

If you are the survivor as a successor holder, there are a couple of options to consider. If you are a “qualifying individual" at the time of the FHSA holder’s death, you can become the new holder of the FHSA and all normal FHSA rules will continue to apply. If you do not wish to take over the FHSA account, you can transfer this amount to your RSP or RIF on a tax-deferred basis; however this must be done by the end of the exempt period, which is the end of the year following the year of death. Alternatively, if you do not want to transfer this to your RSP or RIF, you may receive the proceeds as a taxable distribution. This means it will be taxed as income (the same as it would if making a lump sum withdrawal from your RSP or RIF), and a tax slip will be issued in your name.

If you are the survivor as a beneficiary your options are more limited; and, if no beneficiary designation was made on the account or in their Will, the property will be distributed to the deceased’s estate. In other words, it will be treated as income and be taxable to the estate. 

For a more in-depth conversation about the tax implications of the FHSA at the account holder's time of death, please reach out to one of our advisors today.

- Spire Advisors of Assante Capital Management Ltd.