The First Home Savings Account (FHSA): Canada's hybrid RRSP & TFSA account to save for a new home.
The First Home Savings Account offers Canadian residents at least 18 years of age who are prospective first-time home buyers the ability to make a lifetime contribution of up to $40,000 tax-free. An FHSA account owner must be at least 18 years of age, or the age of majority in their province or territory. Contributions to an FHSA are tax-deductible like an RRSP, and like a TFSA, income and gains inside an FHSA, as well as withdrawals toward the purchase of a first home, are tax-free.
Before you can buy your dream home...you have to start somewhere
COMPLETE GUIDE: How the First Home Savings Account (FHSA) Can Help You Purchase Your First Home in Canada
The tax-free first home savings account (FHSA) gives you the tax benefits of an RRSP and TFSA at the same time. Not a perfect solution but a great way to reduce your income tax today and save $40,000 without paying taxes on your investment profits when you make a withdrawal.
Tax-Free First Home Savings Account Eligibility
The First Home Savings Account is a type of registered savings plan in Canada that gives prospective first-time home buyers the ability to make annual contributions of $8,000 a year to a lifetime maximum of $40,000. Similar to a Registered Retirement Savings Plan (RRSP), your annual contribution of up to $8,000 would be tax-deductible against your income. In addition, similar to a Tax-Free Savings Account (TFSA), the tax-free first home savings account withdrawals you make (including investment gains) would be non-taxable!
Age & Residency
Must be a resident of Canada and at least 18 years old.
Home Ownership #1
Must be a first time home buyer.
Home Ownership #2
You must not have owned a home in which you have lived at any time during the part of the calendar year before the account is opened or at any time in the preceding 4 calendar years.
Restrictions
An FHSA would cease to be a first home savings account, (whereby an individual would not be permitted to open an FHSA account) after Dec. 31 the year in which the earliest of these events occurs:
- The 15th anniversary of you first opening an FHSA or;
- You turn 71 years old.
What happens to First Home Savings Account if savings aren't used?
Any savings not used to purchase a qualifying home could be transferred on a tax-free basis into an RRSP or RRIF or would otherwise have to be withdrawn on a taxable basis.
Individuals that make a qualifying withdrawal could transfer any unwithdrawn savings on a tax-free basis to an RRSP or RRIF until December 31 of the year following the year of their first qualifying withdrawal.
Open your Tax-Free FHSA today
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Making Contributions to a First Home Savings Account
How much can I contribute and withdraw from the FHSA?
Contribution Limits
The lifetime limit on contributions would be $40,000, with an annual contribution limit of $8,000, where the full annual limit would be available starting in 2023. You're able to claim an income tax deduction for contributions made in a particular year. Unlike RRSPs, contributions made within the first 60 days of a given calendar year cannot be attributed to the previous tax year. Income as well as capital gains (and capital losses) earned in an FHSA are not included in your annual income (or deductible) for tax purposes. This means income and capital gains can continue to grow and compound in the FHSA on a tax-free basis.
Carry Forward
You're allowed to carry forward unused portions of your annual contribution limit up to a maximum of $8,000. You would not be required to claim a deduction for the tax year in which a contribution is made. Like RRSP deductions, such amounts could be carried forward indefinitely and deducted in a later tax year. For example, an individual contributing $5,000 to an FHSA in 2023 would be allowed to contribute $11,000 in 2024 (i.e., $8,000 plus the remaining $3,000 from 2023). Carry-forward amounts would only start accumulating after an individual opens an FHSA for the first time.
Multiple FHSAs
You can hold multiple FHSAs, but the total amount that you can contribute to all of your FHSAs should not exceed your annual and lifetime contribution limits. In order to help you determine how much you can contribute, the Canada Revenue Agency (CRA) provides basic information about your FHSA.
In-Kind Transfers
You can make contributions to an FHSA in cash or in-kind through the transfer of securities to your FHSA from a non-registered account. For in-kind contributions, you will be treated as if you sold the securities at fair market value upon transfer, which may trigger a capital gain. If the in-kind transfer results in a loss, however, this loss cannot be claimed.
Over Contributions
Like other registered accounts, a 1% tax on overcontributions applies to the FHSA for each month or part-month the account exceeds the limit.
Uncontributed FHSA Amounts
You wouldn't be required to claim a tax deduction for the tax year in which a contribution is made. Like Registered Retirement Savings Plans (RRSP) deductions, such amounts could be carried forward indefinitely and deducted in a later tax year.
Get started with your First Home Savings Account (FHSA)
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Saving for your first home just got easier
Similar to RRSP contributions, if you make FHSA contributions directly from your employment income, your employer won't have to withhold income tax on the amount of those contributions.
Other First Home Savings Account Considerations
Withdrawals
Several conditions must be met in order to withdraw funds from an First Home Savings Account without being taxed:
- You cannot have lived in a home that you owned either in the 4 previous years or in the year of withdrawal (other than 30 days prior to the withdrawal). 🕓
- You must also have signed a written agreement to buy or build a qualifying home before October 1st of the year following the year of withdrawal.
- From the time the withdrawal occurs until the home is acquired, you must be a resident of Canada. 🍁
Provided you meet the qualifying withdrawal conditions, the entire amount of available FHSA funds may be withdrawn on a tax-free basis in a single withdrawal or a series of withdrawals. Withdrawals that are not qualifying withdrawals would be included in the income of the individual making the withdrawal. Your investment broker-dealer such as Blue Alpha Wealth would be required to collect and remit withholding tax on the non-qualifying withdrawals, consistent with the treatment applicable to taxable RRSP withdrawals.
First Home Savings Account Transfers
If you choose not to use the FHSA to buy a first home, you always have the option (until age 71 or 15 years from account opening, whichever comes first) of transferring funds from an FHSA to your RRSP or a RRIF on a tax-free basis. Transferring funds from an FHSA to an RRSP does not reduce the amount of RRSP contribution room you have available, so if you start contributing to your FHSA, you will have more RRSP contribution room.
Home Buyers Plan (HBP)
Home Buyers Plan withdrawals, which allow first-time homebuyers to withdraw up to $35,000 from their RRSPs to purchase a first home, will remain available; therefore permitting you to withdraw from both the First Home Savings Account and the HBP for the same qualified purchase.
Spousal Plans
Unlike an RRSP, the FHSA holder is the only taxpayer permitted to claim deductions for contributions made to their FHSA. In other words, you can’t contribute to your spouse or common-law partner’s FHSA and claim a deduction. As a result, you can give your spouse or common-law partner the funds to contribute to their own FHSA without incurring spousal attribution penalties.
Non-Residents
Non-residents cannot make qualified withdrawals from their FHSAs after moving from Canada, but they can continue to make contributions to the plan. Specifically, if you withdraw funds from an FHSA you must be a resident of Canada at the time of withdrawal and up to the time a qualifying home is bought or built. Withdrawals by non-residents would be subject to withholding tax.
Treatment Upon Death
Like TFSAs, you would be permitted to designate your spouse or common-law partner as the successor account holder, in which case the account could maintain its tax-exempt status. The surviving spouse would become the new holder of the FHSA immediately upon the death of the original holder provided the surviving spouse meets the eligibility criteria to open an FHSA. Inheriting an FHSA in this way would not impact the surviving spouse's contribution limits, but the inherited FHSA would assume the surviving spouse's closure deadlines.
If the surviving spouse is not eligible to open an FHSA account then the FHSA could instead be transferred to an RRSP or RRIF of the surviving spouse, or withdrawn on a taxable basis. If the beneficiary of an FHSA is not the deceased account holder's spouse or common-law partner, the funds would need to be withdrawn and paid to the beneficiary. Amounts paid to the beneficiary would be included in the income of the beneficiary for tax purposes.
Interest
Like RRSPs and TFSAs, interest on money borrowed to invest in an FHSA would not be deductible in computing income for tax purposes.
types of canadian registered plan savings accounts
RRSP vs TFSA vs FHSA
A Comparison
The FHSA is a registered plan that combines some of the features of an RRSP and a TFSA to create a hybrid plan that helps you save for your first home!
RRSP vs TFSA vs FHSA | RRSP | TFSA | FHSA |
|---|---|---|---|
How does it help you purchase a home? | Withdraw from your RRSP and use the amount towards your qualifying home purchase under the Home Buyers’ Plan. You can borrow up to $35,000 from your existing RRSP, but the borrowed funds must be paid back within 15 years. | Invest your eligible contributions and use them for a home purchase (or anything else you want). Amounts withdrawn from a TFSA create additional TFSA contribution room beginning in the year following withdrawal. | Invest your eligible contributions and use them for purchasing a qualifying home. |
Who's eligible to open an account? | Canadian residents (for tax purposes) up to the end of the year you turn 71, who have earned income and filed an income tax and benefit return. Some financial institutions may require customers to be the age of majority. | Canadian residents 18 years or older who have a valid Social Insurance Number (SIN). There is no upper age limit to hold a TFSA, unlike an FHSA or an RRSP. | Canadian residents 18 years or older but not more than 71 years on December 31 of the year you open an First Home Savings Account, who have a valid Social Insurance Number (SIN) and are considered a first-time home buyer. |
What are the contribution rules? | The lesser of 18% of your previous year's income and the current fixed contribution limit $30,780 for tax year 2023. You can carry forward any unused contribution room from previous years. No lifetime contribution limit. | $7,000 is the annual contribution limit for 2024. You can carry forward unused contribution room from the year you turned 18 and was a Canadian resident for tax purposes. No lifetime contribution limit. | $8,000 is the annual contribution limit. Carry-forward rules apply. $40,000 lifetime contribution limit during the Maximum Participation Period. |
Key Advantages | Funds can be used towards the purchase of a qualifying home under the Home Buyers Plan. Investments can grow within the plan tax-deferred. | Funds in the account grow tax-free and you can use the value of the account for anything you like, including towards the purchase of a home. | Funds in the account grow tax-free, which could mean more money for a qualifying home purchase. You may also be able to transfer funds tax-free from your FHSA to an RRSP or RRIF in your name. |
Will I get a tax deduction on eligible contributions? | Eligible contributions are tax-deductible (except on transfers into your RRSP from your FHSA). | No. Contributions are not tax-deductible. | Eligible contributions are tax-deductible (except on transfers into your FHSA from your RRSP, although these transfers do use up FHSA contribution room). |
Limitations | Under the HBP, any RRSP withdrawal used to buy or build a qualifying home must be returned to your RRSP within 15 years and repayment begins in the second year after the year when you first withdrew funds. If you fail to repay the required amount within the required time frame, that amount will be considered as taxable income in that year. | Contributions made to a Tax Free Savings Account are not tax-deductible. | An FHSA can only be held until December 31st of the year in which the earliest of the following occurs: the 15th anniversary of opening your first FHSA, the year you turn 71 or the year following your first qualifying withdrawal. Non-qualifying withdrawals (not made to purchase a qualifying home) are taxable income. |
You have FHSA questions - we have answers.
Still have questions about this new type of registered savings plan? Here are answers to some common logistical questions.
With the current Home Buyers' Plan, you can withdraw up to $35,000 from your RRSP subject to eligibility rules. The withdrawn funds must be paid back to your RRSP over 15 years at whatever pace you choose. Alternatively, with the FHSA, eligible withdrawals do not have to be paid back at any time.
In terms of combining both to get maximum impact e.g. $40,000 + $35,000 ($75,000 + interest), yes you can combine savings from your RRSP Home Buyers’ Plan (the HBP) and your FHSA to use towards the purchase of the same qualifying home purchase.
Blue Alpha Wealth offers different types of low cost investments for other registered accounts like the RRSP and TFSA. An FHSA is permitted to hold the same types of qualified investments that are currently allowed in a these other registered accounts, including mutual funds, stocks, bonds, GICs and savings accounts. You will not be able to hold alternative investments like private equity or prospectus exempt securities in a First Home Savings Account.
As a newcomer to Canada, you are permitted to open an FHSA if you're a Canadian resident for tax purposes who has a Social Insurance Number (SIN)or temporary SIN. You must be at least 18 years old or the age of majority in your province or territory of residence and considered a "first-time homebuyer".
As per the federal government FHSA rules, to be considered a first-time homebuyer, you must not have lived in a “qualifying home” as a principal place of residence at any time during the part of the calendar year before the account is opened or at any time in the preceding four calendar years. Or what would be a qualifying home if it was located in Canada that either (i) you owned or (ii) your spouse or common law partner owned (if you have a spouse or common law partner at the time of account setup). The government has tried to make it easy for all types of people to open a First Home Savings Account in Canada.
You can open an FHSA if you reside in Canada (with permanent or temporary resident status), you have a Social Insurance Number (SIN) or a Temporary Identification Number (TIN), and you meet the eligibility criteria of a first-time home buyer.
Yes, you are permitted to carry forward any unused contributions up to $8,000 in any year. Your carry-forward amounts will only start accumulating once you've opened an FHSA for the first time and not based on the existence of a FHSA similar to the TFSA where you could go back to 2009.
You must meet certain eligibility requirements outlined by the federal government in 2022 to open an FHSA. For example, to make a withdrawal from your First Home Savings Account (FHSA) savings tax-free, your home must meet the eligibility requirements for a "qualifying home". Learn more eligibility requirements here.
- Funds you withdraw from your FHSA that aren't used to purchase a qualifying home are subject to income tax similar to if you withdrew from your RRSP before age 71.
- Another option is to transfer the balance of the FHSA funds not used towards the purchase of a home to an RRSP or RRIF (Registered Retirement Income Fund) on a transfer basis that is not considered taxable with consideration of applicable rules.
- Available RRSP contribution room is not affected if you transfers from your FHSA to your RRSP or RRIF.
- The funds transferred to an RRSP or RRIF will be taxed upon withdrawal similar to the tax and age 71 rule of an RRSP.
Get started with your First Home Savings Account (FHSA)
Fill out the form to get in touch with us and we'll get back to you as soon as possible.