Delean: Explaining the Tax-Free First Home Savings Account

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Plus: How long should you keep tax records for deceased people? And when is Revenu Québec going to process my tax return?

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The newly-announced tax-free savings account for home buyers and the length of time tax documents need to be kept were among the topics raised in recent reader letters. Here’s what they wanted to know.

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Q: “I’m saving for a first home and remember hearing something recently about a new incentive. How will that work?”

A: The federal government confirmed in the last budget it will proceed with the introduction, in 2023, of the Tax-Free First Home Savings Account, a special savings vehicle for home purchases for first-time buyers. Terms have yet to be spelled out in detail, but the broad strokes are that the program would be for Canadians 18 to 40 who’d be able to contribute up to $8,000 a year (with a lifetime limit of $40,000) into the plan toward a first home purchase, and get an equivalent tax deduction. If you use the funds to acquire a home, the money can be withdrawn tax-free. If you don’t, it will be treated as taxable income when you take it out. (It could also be transferred to an RRSP if not used for a house, apparently without affecting RRSP contribution limits). The FHSA cannot be combined with the existing Home Buyers’ Plan (HBP) that permits a withdrawal (and expected repayment) of up to $35,000 from a Registered Retirement Savings Plan (RRSP). Because there are fewer strings on the FHSA, it likely will be the preferable vehicle for those just starting to save for a home, but for those getting close to that goal, tapping the RRSP still looks like the better option, because it’s more likely to contain a sizeable sum. The federal government also announced it will be doubling the First-Time Home Buyers’ tax credit to $10,000 (for a tax saving of $1,500), for qualifying purchases after Jan. 1, 2022.  Quebec also has a Home Buyers’ Credit for first-time purchasers worth $750.

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Q: “My mother passed away last year at age 96. I looked after all her finances since 2006, and still have all her tax returns since then. I am almost finished settling the estate. How long should I keep everything? Is it the usual seven years (that taxpayers are supposed to keep their tax records)? My siblings have never asked to see any of it. Also, my late father looked after the wills of three in-laws who died years ago.  I still have their records in a metal box. What should I do with them?”

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A: The seven-year rule does not apply to the tax information or financial documents of people who are deceased unless Canada Revenue Agency (CRA)  specifically tells you to keep them. Normally, tax returns and paperwork can be disposed of as soon as the liquidator or legal representative of the deceased obtains clearance certificates from both federal and provincial revenue departments to distribute the property under their control. As a courtesy to your siblings, you might want to mention that’s your intention and if they want to look over any documents, now’s the time.

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Q: “I still don’t have my notice of assessment yet from Revenu Québec. I expect I will owe them money. Should I be worried?”

A: In my experience, Revenu Québec generally has been quicker to process tax returns than CRA, but that appears not to be the case in 2022. When you call Revenu Québec’s information line, one of the first things you hear is that the average processing time this year is 26 to 27 “working days” — in other words, more than five weeks. And there’s an apology for the delay. So apparently you’re not alone in wondering what’s holding up your notice of assessment — and the $500 tax credit that goes with it. If you owe money, the provincial tax department usually allows a couple of weeks to pay without penalty.

The Montreal Gazette invites reader questions on tax, investment and personal-finance matters. If you have a query you’d like addressed, please send it by email to Paul Delean at [email protected] 

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