It's about to get a bit easier (at least in theory) for people who don't already own property to buy a home in Canada as the federal government prepares to launch a brand new Tax-Free First Home Savings Account (FHSA) plan.

Explicitly designed to benefit young first-time homebuyers, the plan will come into effect in just a few weeks, on April 3, 2023.

"This new registered plan would give prospective first-time home buyers the ability to save $40,000 on a tax-free basis," reads an explainer from Canada's Department of Finance.

"Like a Registered Retirement Savings Plan (RRSP), contributions would be tax-deductible, and withdrawals to purchase a first home—including from investment income—would be non-taxable, like a Tax-Free Savings Account (TFSA)."

This move is one of several approved as part of the 2022 federal budget, during which $10 billion in new spending was earmarked to help tackle a widespread affordability crisis.

Housing prices have been rising across Canada for decades while average incomes have been stalling, presenting an affordability crisis in which many young people struggle to save up enough for a down payment and get a foot on the property ladder.

The goal of the FHSA (and similar measures like foreign buyer restrictions) is to help more Canadians achieve the dream of homeownership despite living in exceptionally expensive times.

While initially proposed by the Trudeau government with an age cap of 40, any Canadian resident will now be eligible for one of these accounts if they are at least 18 years of age, do not live in a home that they own, and have not lived in a home that they owned at any time during the previous four calendar years.

FHSA accounts can be opened at most participating banks or credit unions, just like RRSPs and TFSAs, and banks seem more than eager to help their clients take advantage of the savings.

"Looks like there could be light at the end of the tunnel for your rental life. Homeownership might be closer than you think ⁠— with a new way to amp up your savings with the recently announced tax-free home savings account," wrote Scotiabank on its website when the program was approved.

So how does it work?

Per the parameters of the program, any money deposited into one of these tax-free accounts can be used towards a down payment on a first home.

"An FHSA combines the features of a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA)," explains TD.

"Like an RRSP, contributions would be tax-deductible and qualifying withdrawals to purchase a first home would be non-taxable, like a TFSA. However, with an FHSA and unlike the Home Buyers' Plan, the funds do not need to be paid back."

Per the federal government, individuals would be limited to making non-taxable withdrawals from their FHSAs for just one single property in their lifetime.

"Once an individual has made a non-taxable withdrawal to purchase a home, they would be required to close their FHSAs within a year from the first withdrawal and would not be eligible to open another FHSA," reads the government's website.

"Amounts withdrawn to make a qualifying first home purchase would not be subject to tax. Amounts that are withdrawn for other purposes would be taxable." 

As for how much can be taken out tax-free, there is a lifetime limit on contributions of $40,000, subject to an annual contribution limit of $8,000. 

Unused annual contribution room can not be carried forward, unfortunately, meaning that an individual contributing less than $8,000 in a given year would still face an annual limit of $8,000 in subsequent years.

Will the FHSA solve Canada's affordability woes? Probably not, especially in markets like Toronto and Vancouver, where housing prices are notoriously high.

That said, experts suggest that it could be a valuable tool for young first-time homebuyers, as it can help them save up for a down payment much faster than they might be able to on their own.