David, 28, has been saving for a down payment and contributes $8,000 to his FHSA in January 2024. He earns $65,000 per year. In November 2024, David unexpectedly inherits a substantial sum, allowing him to purchase a home in December 2024. What is the tax implication of withdrawing the $8,000 from his FHSA for the home purchase?

Question: David, 28, has been saving for a down payment and contributes $8,000 to his FHSA in January 2024. He earns $65,000 per year. In November 2024, David unexpectedly inherits a substantial sum, allowing him to purchase a home in December 2024. What is the tax implication of withdrawing the $8,000 from his FHSA for the home purchase?

Answer options: ✅ The withdrawal is tax-free, as it is a qualifying home purchase withdrawal.

• The withdrawal is taxable at his marginal rate, as he did not hold the funds long enough.
• The withdrawal is subject to a 10% penalty, similar to an early RRSP withdrawal.
• He can transfer the funds to his RRSP tax-free, but cannot use them for a home purchase.

Correct answer: The withdrawal is tax-free, as it is a qualifying home purchase withdrawal.

Explanation: A qualifying withdrawal from an FHSA for a first home purchase is tax-free, regardless of the length of time the funds have been held in the account. All conditions for a qualifying withdrawal must be met, which include entering a written agreement to buy or build a qualifying home and being a first-time home buyer.