The First Home Savings Account, or FHSA account, is a registered savings account that allows first-time home buyers to put away up to $40,000 tax-free for the purchase of their home.
FHSAs became available in Canada on April 1, 2023 to help prospective home buyers save for their first home. If you meet the qualifications to open an FHSA, you can deposit up to $8,000 in the first year.
First Home Savings Accounts operate similarly to RRSPs and TFSAs. You only have a certain amount you can contribute each year, and you can carry forward any unused contribution room. Any deposits into the account (besides transfers from your RRSPs) can be deducted from your taxable income and you can pull this money (and any investment gains) out tax-free if you make a qualifying withdrawal.
Many financial institutions now offer FHSA accounts, including Questrade, RBC, TD, and more.
Here, we take a look at the features of this new savings plan, including who’s eligible to open an FHSA, rules for contributions and withdrawals, and some pros and cons that can help you decide whether it's the right investment for you.
Key Takeaways
- You may be eligible to open a First Home Savings Account (FHSA) if you’re a Canadian resident over 18 and a first time home buyer.
- Save up to $8,000 per year tax-free, up to $40,000 lifetime savings.
- Like an RRSP, your contributions are tax deductible and contribution room can be carried forward.
- Withdrawals are also non-taxable as long as they meet qualifying criteria.
- Several financial institutions offer FHSAs, with more options available in late 2023.
Eligibility and rules for the FHSA
The eligibility rules are as follows:
- You must be a Canadian resident,
- be 18 years of age or older (or the age of majority in your province), and
- be a first-time home buyer.
It’s especially important that you be a first time home buyer – but this doesn’t necessarily mean that you can’t have ever owned property before. According to the government’s guide, “Opening and closing your FHSAs,” you and your spouse cannot own any home you’ve lived in during the last year, nor can you have owned a home you lived in during the previous 4 years.
So, if you bought a house in 2014, sold it in 2017, and haven’t owned any property since, you are eligible for an FHSA today, in 2024. But if you only sold that property in 2019, you are not eligible for an FHSA in 2024.
Once the account is opened, there are 3 events that can trigger the closing of the account. You can keep it open for either:
- 15 years,
- until the end of the year that you turn 71 years old, or
- the end of the year after you make a withdrawal from your FHSA in order to buy your first home.
Of course, it may happen that you don’t end up purchasing a home at all – this doesn’t mean your money and efforts will be wasted. Rather than waiting it out until after your 71st birthday, you can transfer funds to an RRSP or RRIF.
It’s important to close the account before it’s reached one of these end dates, otherwise anything that’s held within the account will need to be declared as income for that year’s tax return.
Making FHSA contributions
You can contribute up to $40,000 to your FHSA over your lifetime, with an annual cap of $8,000. These contributions are tax-deductible and do carry over each year, but only to a max of $8,000 in carryover per year.
The rules regarding making contributions to your First Home Savings Account are similar to RRSP contributions, with a few distinctions. Here’s what you need to know:
- Any contributions made during the first 60 days of the year are not deductible on your previous year’s income tax.
- You can make a contribution but request to not receive the deduction until the following year.
- Any over-contributions will result in a 1% tax for every month the account is over the limit.
Keep in mind that while you can hold more than one FHSA, the total amount contributed to all of these accounts must still adhere to the annual limit and lifetime limits. You also can’t directly contribute to your spouse or partner’s FHSA – only the holder of the account can make contributions or receive tax deductions.
This type of first time home buyer savings account isn’t like a typical savings account and therefore can hold more investment types than just cash. Instead, you can choose to hold any or all of these types within your account:
- mutual funds,
- publicly traded securities (like stocks),
- government bonds,
- corporate bonds, and
- GICs.
You can also transfer funds from an RRSP to your FHSA, as long as you have the necessary contribution room available. And you can withdraw money from your TFSA and add it to the FHSA instead, tax-free (as long as it’s a direct transfer).
Withdrawing funds from your FHSA
You must meet all of the following requirements in order to withdraw funds without facing tax consequences:
- you must fill out a form and give it to the financial institution you have your FHSA with,
- the funds must be used to purchase a qualifying first home,
- you must have a written agreement to buy or build your home before October 1 of the year after you withdraw funds,
- you cannot have purchased the home more than 30 days before making the withdrawal,
- you must be a resident of Canada when you make your first qualifying withdrawal and continue to be a resident until you acquire your home, and
- the new home must become your principal residence within one year after buying or building it.
As long as these conditions are met, you can withdraw as much or as little as you like from your FHSA without worrying about being taxed. You can choose to do it as one large transaction or break it up into a series of smaller transactions.
Types of FHSA withdrawals
The main types of FHSA withdrawals are as follows:
- Qualifying withdrawal: If you meet the above criteria, you can withdraw from your FHSA and reap all the benefits.
- Taxable withdrawals: Any withdrawal that does not meet the criteria above will be taxable and be noted as income.
- Designated withdrawals: If you contribute more than you are permitted to, you can withdraw the excess, which will not result in taxable income.
Once you've withdrawn your funds, you should close all FHSA accounts before December 31 of the next year, which is when the account would be closed automatically. If you had funds left over when the account is forcibly closed, you'd have to include them as taxable income for that year.
Will an FHSA actually help you buy a house?
Yes, an FHSA will be able to help you buy your first home thanks to various tax benefits.
- Contributions to your FHSA are tax-deductible: Money that would normally be paid as income tax can be saved and invested. This is a major tax break that makes them similar to an RRSP.
- Qualifying withdrawals are non-taxable: It doesn't matter if you withdraw one large lump sum or make several smaller transactions – as long as it meets the qualifying criteria, it's tax-free.
Both of these benefits means more money in your pocket to put towards your new home.
Comparison to the Home Buyer's Plan
The Home Buyers' Plan is a program that lets you withdraw up to $35,000 tax free from your RRSP to help fund your first home.
The difference is that the FHSA does not need to be paid back. But, if you have a lot of money in your RRSP, it may be more useful as you'll immediately have access to a large amount of money that you can put towards your home.
5 benefits of the FHSA
The FHSA has several benefits that set it apart from other types of accounts or savings plans. Let's take a look at how these features can work for you.
1. Contributions are tax-deductible
Account holders are able to claim their contributions as tax deductions on their income tax returns each year, just like RRSP contributions. Most Canadians will agree that an account that provides tax breaks is worth considering.
If you can’t or choose not to claim FHSA contributions for a specific tax year, you’re still able to carry the amount forward and claim it on your income tax return in a future year. Your notice of assessment or reassessment will let you know how much you have available to claim on future returns.
Saving money on your taxes and/or getting a larger refund can provide you with extra cash that you can put back into your savings. Or it can be used for other purposes, whether it be saving for another purpose, paying down debt, or something else entirely. Either way, it provides an opportunity to improve your finances and help you get approved for a mortgage – maybe even a bit sooner than you originally thought.
More specific details regarding these deductions can be found here: Tax deductions for FHSA contributions.
2. Unused contributions can be carried forward
Any unused FHSA contribution room can be carried forward into the following year. This “carryforward” amount will be included in the calculations to determine your participation room for the next year.
For example, if you open a new FHSA in 2023 but only contribute $2,000 of the possible $8,000 for that year, the remaining $6,000 can be carried over into the next year. This means you’ll be able to contribute up to $14,000 in 2024.
There is an annual carryforward limit of $8,000 to keep in mind, though. If you open an FHSA in 2023 but don’t make any contributions at all until 2025, you’ll still only have an extra $8,000 to add to 2025’s annual limit – for a total of $16,000 of contribution room for 2025.
3. Qualifying withdrawals are non-taxable
As long as it’s considered a “qualifying withdrawal,” you’re not required to include any funds taken from your FHSA as income on your taxes. And it doesn’t matter if you withdraw one large lump sum or make several smaller transactions – as long as it meets the qualifying criteria, it’s tax-free.
As discussed above, qualifying withdrawals include those by current Canadian residents, used to build or buy a first house within a specific time period. And this new home must be your principal residence within a year of purchasing or building it.
4. Funds used do not need to be paid back
Unlike with the government’s Home Buyers Plan, any funds you withdraw from an FHSA do not have to be paid back. This is because the funds you contribute to this account are specifically for purchasing a home, whereas the Home Buyers Plan is a loan that uses money meant for your retirement.
Naturally, you’ll want and even need those RRSP funds back, but you won’t necessarily miss the money you withdraw from your FHSA since it’s been used for its intended purpose.
5. Unused funds can be transferred
If you don’t end up using your FHSA savings to buy a home, you can transfer the funds to another type of account instead. This option is available whether you simply decide you don’t want to use your FHSA anymore, or if you use funds to buy a home and still have some left over.
You can choose to transfer the money into an RRSP or RRIF and won’t have to worry about paying taxes on it. However, when you withdraw the funds from either of those accounts, you’ll be taxed.
4 downsides of the FHSA
Nothing is perfect, and there are indeed some disappointing details associated with the FHSA. Here, we'll look at a few of these drawbacks in more detail.
1. If funds aren’t used or withdrawn, they’ll be taxed
Your account ceases to be an FHSA on December 31 of the year following your qualifying withdrawal, which means you’ll need to transfer any leftover funds out of the account before that date. Otherwise, you’ll be taxed on whatever is left in the FHSA.
The option to transfer to an RRSP or RRIF is convenient, and it’s nice to know that you have time between the qualifying withdrawal and when the account “closes,” but it would be even nicer if you didn’t have to worry about it at all.
2. Second homes/new homes don’t qualify
As earlier discussed, the house you purchase with FHSA funds must be your first home. And while this doesn’t technically mean you can’t have ever owned a home before, it does mean that you can’t currently own or jointly own your current place of residence. Therefore, second homes, income properties, and other such real estate purchases won’t qualify.
This is a bit of a disappointment since real estate can be a valuable way to improve your investments and the Canadian housing market is difficult to navigate, both practically and financially.
3. Not the same flexibility as a TFSA
While a TFSA allows you to save money for either short or long-term goals with the option to withdraw funds whenever you need them, your FHSA has strict guidelines regarding acceptable withdrawals. You’re also required to close out your FHSA by the time you turn 71 years old or by the time the account has been opened for 15 years. But a TFSA has no such regulations.
Yes, these restrictions are in place for good reasons, but they do put a bit of a strain on your flexibility when saving, looking for a home, and purchasing a home.
4. Modest contribution limit
Compared to the Home Buyers' Plan, the FHSA has contribution limits, and while the grand total that you can put in is higher, it will take 5 years to reach that amount.
In the end, especially if you live in an area with a crazy real estate market, it won't cover too much, but keeping money in a tax-sheltered environment is never a bad thing, especially if you can invest it in something with a higher return than a HISA.
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$25 GeniusCash + Delicious meal choices with fresh ingredients + Front-door delivery.First Home Savings Account alternatives
The table below sets out the main benefits and disadvantages of 3 of the most obvious FHSA alternatives.
| Alternative | Pros | Cons |
|---|---|---|
| RRSP Home Buyers Plan | * Easy access to funds for a down payment * Works like an interest-free loan * 2-year grace period before repayments are required * Make your own repayment schedule * No maximum limit for payback, so you can do it all at once if you like | * Short window for application * Not helpful if you don’t have much in your RRSP * Must be paid back within 15 years * Potentially losing out on compound interest on your RRSP |
| TFSA | * No age limit for opening or holding an account * Investments grow tax-free * Withdraw funds at any time without withholding tax * Contribution room isn’t dependent on income level * Withdrawals won’t count as income | * No spousal account option * Contributions aren’t tax deductible * Not protected from creditors * Penalties for overcontributions |
| Non-registered savings account | * Can choose between either a cash or margin account * Flexible and liquid, providing options when you need it * No limits on contributions or withdrawals * No age limits for opening or holding accounts * Useful when you can’t or don’t want to use RRSPS, TFSAs, etc. | * Investment income is taxable * Capital gains are taxable once sold (even though it’s only 50%) * Contributions aren’t tax-deductilbe * Moving funds into a registered account can result in taxes |
Comparing and contrasting these accounts can be a bit tricky, especially if your goal is to save for a new house, as with the FHSA. Your best bet is to use a combination of these accounts and the FHSA and enjoy the benefits that each one has to offer.
In some ways, you can think of your FHSA as extra contribution room for your RRSP, since you can move the property within the account to your RRSP tax free if you don’t end up buying a home with it within 15 years.
How to open an FHSA
You can open your FHSA the same way as any RRSP or TFSA – through any investment broker or robo advisor that has the account available.
Where you can open an FHSA in Canada
All of the Big 5 Banks in Canada have FHSAs available. You can also get FHSAs from banks like:
- EQ Bank
- National Bank
- Questrade
- Wealthsimple
Looking for the best option? Questrade is one of Canada's top online brokers, with a long list of excellent investment accounts available for clients, low fees, and first-rate customer support. Really, Questrade is a solid choice for your FHSA.
You can learn more about the Questrade here:
Questrade is one of Canada's top online investment platforms. With very low fees, including no-fee ETF trading, commission-free stock trades, and plenty of investment types, Questrade just about covers it all.
- Total transparency with fees
- Surprisingly low fees
- Lots of investment account and product choices
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$25 GeniusCash + $50 bonus for funding a new account, and $0 commissions on stocks & ETFs- Excellent array of investing and trading tools
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- TFSA
- RRSP
- Spousal RRSP
- LIRA
- Locked-In RRSP
- RIF
- LIF
- RESP
- Family RESP
- Corporate
- Investment Club
- Partnership
- Sole Propietorship
- Individual Informal Trust
- Joint Informal Trust
- Formal Trust
- Individual Margin
- Joint Margin
- Individual Forex & CFDs
- Joint Forex & CFDs
- FHSA
- Stocks
- ETFs
- Options
- FX
- IPOs
- CFDs
- Mutual Funds
- Bonds
- GICs
- International Equities
- Precious Metals
$25 GeniusCash + $50 bonus for funding a new account, and $0 commissions on stocks & ETFsTypes of FHSAs
The government of Canada lists 3 types of FHSA:
- Depository FHSAs: Accounts that hold money like term deposits and GICs
- Trusteed FHSAs: Trusts that hold investments like mutual funds, bonds, and securities on a stock exchange
- Insured FHSAs: Annuity contracts
Will you take advantage of the tax-free First Home Savings Account?
The FHSA offers a unique opportunity for hopeful homebuyers to save money for their first house. It can even be used alongside other home-buying programs, which makes it even more appealing.
How do you feel about this new savings plan? Will you take advantage and open your own FHSA?
Let us know in the comments below.
FAQ
What is a tax-free First Home Savings Account (FHSA)?
A First Home Savings Account is a new type of registered savings plan that's made specifically to help Canadians save and buy their first home. It combines many of the features of a TFSA, an RRSP, and the Home Buyers' Plan.
Can you tell me how to open an FHSA?
To open an FHSA, you must be a Canadian resident and are 18 years of age or older, and meet the requirements of a first-time home buyer. Many banks, but not all, offer this account as a product option.
How do I close an FHSA?
There are 3 events that can close an FHSA. You can keep it open for either 15 years, until the end of the year you turn 71, or until the year after you make a qualifying withdrawal and purchase your first home. You'll need to request that it be closed out at your financial institution.
Who qualifies for a First Home Savings Account?
Anyone who is 18 years of age or older, resides in Canada, and is a first time home buyer may be eligible to hold an FHSA. You may qualify even if you've owned a home before, as long as it wasn't within the last 4 years.
Can you use an FHSA and the Home Buyers’ Plan (HBP) together?
Yes, you can use both the FHSA and HBP to purchase your first home, as long as you’re eligible for both programs. You don’t have to pay back money from your FHSA, but you’re required to pay back funds from your RRSP within 15 years.
Do you have to repay an FHSA?
No, unlike the Home Buyers' Plan, you do not have to repay an FHSA. You can contribute until you withdraw it, or wait until it closes automatically after age 71 or after 15 years of having it open.
What happens if you don't use your FHSA to buy a house?
If you don't end up buying a home, the money in your FHSA may be transferred to an RRSP.
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