The investment industry is seeking more details from the Canada Revenue Agency and Finance on a proposed tax-free savings account for first-time home buyers that has been introduced in the federal budget earlier this year.
Currently, the federal government has yet to release a bill for the new account known as the first Tax-Free Home Savings Account – or FHSA. But they should be available to Canadians sometime in 2023 – leaving the investment community with a “fairly aggressive timeline” to develop a product they know very little about operationally, says Robert Offen, director of specialist services at AGF Investments Inc.
Mr. Offen, speaking at an annual conference of the Investment Funds Institute of Canada (IFIC) in Toronto, said that IFIC – which represents more than 150 asset management companies country – first met with CRA and Finance immediately after the budget in April.
Following the meeting, the group, along with the Canadian Bankers Association, the Healthy Living Association of Canada and the Investment Industry Association of Canada, sent 11 pages of questions to the government asking for additional clarifications.
The questions were intended to clarify the requirements surrounding eligibility, qualifying withdrawals, plan termination, tax reporting and the reporting process. He also requested information on the process surrounding excess contributions, what happens in the event of the death of the holder and beneficiaries or if a holder becomes a non-resident, as well as detailed questions regarding the day-to-day administration of this new regime. .
Mr Offen says a draft law is expected to be published by the end of July – followed by a 60-day period for industry comment. A second bill will be submitted towards the end of October, which means the royal asset – or approval of the legislation – is unlikely to take place until the end of December.
“If we’re looking to launch in 2023 and make the first filing by 2024 — our timeline is pretty aggressive,” Offen told an in-person and virtual audience on Monday.
When asked if the group would meet again with Finance, Mr Offen confirmed that a second consultation will take place in the “second half of the year” when the group will know “a little more” about the product he has to build.
As outlined in the budget, the FHSA would allow any Canadian 18 and older to save up to $40,000 — with an annual contribution limit of $8,000 — towards the purchase of a first home. The new account should combine the two main tax advantages of the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). Similar to an RRSP, deposits into the account would be tax deductible, while qualifying withdrawals would be tax free, like a TFSA. Any investment growth in the account would also be tax-free.
For investors – and potential buyers – the accounts will provide another savings tool to help combat a booming property market that has pushed some first-time buyers into some areas.
But for the investment community — particularly the asset managers who will need to develop the product — the combination of TFSA and RRSP accounts adds several layers of complexity to the operational process, Offen says, and these need to be clarified before ‘a financial company can launch their own exclusive product launch projects.
During the roundtable, IFIC Senior Tax Policy Advisor Josée Baillargeon told the roundtable that CRA and Finance are willing to engage with the investment community and that the group of associations hopes that the list of questions will ensure the next consultation. will provide much more information.
“At the moment, there is very little information…just 621 words to be exact that was written in the tax measure to explain this,” Ms Baillargeon said. “There is a lot more unknown than known at this point.”
-With a file by Erica Alini
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