One month since the launch of the first home savings account, advisers say the product is still a work in progress and most major financial institutions have yet to offer it.
The savings account was introduced in April and combines the tax deduction benefits of registered retirement savings plans and the tax-sheltering perk of tax-free savings accounts in order to help Canadians save for down payments. However, it currently is only offered by a handful of institutions, including Royal Bank of Canada, National Bank of Canada and Questrade.
Aaron Hector, a Calgary-based private wealth adviser with CWB Wealth who has been watching the FHSA program closely, said one reason institutions are likely holding off on offering the FHSA is because some of the forms required to make certain transactions with the account aren’t available yet.
For example, Canada Revenue Agency’s website shows that forms are not yet available for people who want to transfer money between two different FHSA accounts, or for people who decide to move FHSA funds into an RRSP. The website listed the forms for designated withdrawals for a down payment as needing “more information” that would be available at a “later date.”
Mr. Hector said he believes financial institutions may be waiting for details to firm up before launching accounts. His company is still unable to open the account as the custodians that they work with are not yet ready.
William Chan, a Mississauga-based financial planner affiliated with Sterling Mutuals Inc., also pointed out that changes to the program were being made up until November, further complicating the rollout process for banks.
Some of Canada’s major financial institutions have said they’re aiming to offer the FHSA by summer or by the end of 2023.
Canada Revenue Agency said subject experts were part of the strike by public-sector workers and it would not be able to respond to questions.
Clay Gillespie, managing director at RGF Integrated Wealth Management, said it’s possible the strike could cause further delays to the rollout of FHSA at other institutions, but said that depends on which part of CRA’s internal work force is affected.
Mr. Chan said his firm has actively been warning clients about the risks associated with opening an FHSA to capitalize on the income tax deduction if they plan to purchase a home in the coming weeks or months, since people are yet to see how long a withdrawal of funds would take.
“There’s a withdrawal form, but that form needs to go through the fund company, make it through the government and back to the fund company before the funds are released, and nobody’s attempted it yet,” said Mr. Chan.
“I just don’t know, based on the account being as new as it is and the widespread issues with setting it up, how the administrative process will look.”
He said he’s even telling clients that may purchase much later in the year to put money into a TFSA for now to watch how the program goes, since they can still get a tax deduction if they transfer that money into a FHSA by the end of the year.
However, Mr. Hector said he would still advise people to open an FHSA for impending home purchases, since the tax savings could be worth more than $1,000 for someone who makes the maximum contribution of $8,000.
In the worst case in which a homebuyer is delayed in accessing their funds, he said the person could use a line of credit in the meantime, since the tax benefits would outweigh any interest costs.
Both Questrade and RBC have said they expect withdrawals to take up to five business days as long as forms are submitted properly.
Questrade, which has actively marketed itself as one of the first institutions to offer the FHSA, said it welcomed customers that only want to open an account with them for an impending home purchase, although it hoped new customers would enjoy the experience enough to open other investing accounts with them.
Meanwhile, Mr. Gillespie said the most unfortunate part of the FHSA’s uneven rollout is that some Canadians may miss out on the compounding benefits of investing in a tax-free savings account early on. Those gains are especially important when saving enough money for a down payment is already so difficult.
“It’s not going to make or break someone buying a house,” said Mr. Gillespie, but he added, “It’s annoying because people are losing out on the compounding.”
