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Banks unclear of timeline for new first-time homebuyers account

This article, written by Salmaan Farooqui, was originally published by The Globe and Mail on April 2, 2023, and features insights from Aaron Hector, Private Wealth Advisor.

The rollout of Canada’s new tax-sheltered savings account for first-time homebuyers has arrived with a fizzle, as major banks remain unclear on when they’ll even be able to offer the product and financial advisers are unsure of where to direct clients.

The sputtering start to the First Home Savings Account (FHSA), launched on Saturday, could leave some homebuyers entering the market this year unable to take advantage of the program, an adviser says.

The FHSA is meant to help Canadians invest in a down payment. The account combines the benefits of tax-free savings accounts and registered retirement savings plans by sheltering investments from capital gains tax upon withdrawal, and by making deposits deductible from income tax earnings.

Eligible Canadians will be able to contribute up to $8,000 a year to a maximum of $40,000. Investments can be removed tax-free for a down payment to purchase a home, or can be shifted into an RRSP down the road if users decide not to buy a home.

The product, which will be one of the very few tax-sheltered investment tools available to Canadians, was supposed to be accessible as of Saturday, but Canada’s six major banks were only able to offer vague timelines of when FHSA will be available. Some banks – including Bank of Montreal, Canadian Imperial Bank of Commerce and Toronto-Dominion Bank – only said the account will be sometime this year, while Royal Bank of Canada said it expected to release the product in the spring.

On Thursday, online investment platform Questrade became one of the first to confirm that clients will be able to open an FHSA account as Saturday. Other online investing outfits such as Wealthsimple said they didn’t have any timeline to share, despite starting the application process with the government as early as possible.

Andrew Dobson, a financial adviser with Objective Financial Partners, said he had no idea where to direct one couple that asked him last week about where to open an FHSA.

“The truth is we don’t know when we can actually get the account open,” said Mr. Dobson, who is based in London, Ont.

He said the uneven rollout of the program may prove to be detrimental for homebuyers who want to take advantage of the income-tax benefits for a home purchase this year, especially if financial institutions require a waiting period before a deposit can eventually be withdrawn.

“That’s going to be what’ll worry the most people,” said Mr. Dobson. “If I want to buy this year, is there enough time if I have a closing in June, to take it out and it still qualifies?”

However, he said that the FHSA will still be a beneficial tool in the long run, because the largest upside exists for people who can max out their contributions and let the investments sit for multiple years to grow.

Aaron Hector, a Calgary-based private wealth adviser with CWB Wealth who has been watching the FHSA program closely, said it appears the backlog is on the government side as it works to approve financial institutions that submitted detailed applications for the program.

“I’ve heard lots of institutions hinting around later in the summer, maybe into the fall even before they’re ready to go,” said Mr. Hector, who said banks offering preregistration for FHSA accounts is evidence that institutions are simply waiting for final approval before moving forward.

Questrade only confirmed it would be ready to open accounts two days before the Saturday launch date, which chief executive Edward Kholodenko attributed to a lengthy application process that required waiting for approval from the Canada Revenue Agency.

CRA spokesperson Sylvie Branch said financial institutions received application instructions for the FHSA program in early February, and it has been working with them to finalize approval since then.

“To date, the CRA has provided financial institutions with all the materials they need to design their FHSA product,” said Ms. Branch. “The CRA is working with the financial institutions to ensure that their applications comply with the Income Tax Act as well as with CRA’s administrative rules.”

Mr. Kholodenko said he believes interest in the program will be muted for now, both because of the relatively limited number of Canadians that the program is tailored for, and because of a lack of financial literacy in general with young people who stand to benefit the most from the program.

Still, he said it was a great way for young people to give investing a try for the first time.

Mr. Dobson called the product a “no-brainer” for anyone who has never bought a home because of the tax benefits and flexibility, but he also had his doubts on how much of a difference the program will make for prospective homebuyers when housing has become so deeply unaffordable in Canada.

That’s because even a growth portfolio that does exceedingly well for a few years still only make a small dent in the cost of a down payment. He estimated the maximum benefit in a few years of using an FSHA would only be around $20,000.

“When the average house is around $700,000, is 20,000 bucks going to help that much?” asked Mr. Dobson. “It’s hard to see it, but I guess any help is good.”

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