FHSA

Saving for Your First Home

The Tax-Free First Home Savings Account (FHSA) was introduced in Canada on April 1, 2023, as a new registered plan following the Tax-Free Savings Account (TFSA). Designed to assist first-time homebuyers, FHSA combines the tax benefits of TFSA and RRSP. Contributions, investment income, and growth in FHSA are all tax-free, and withdrawals for a first home purchase are also tax-exempt, offering convenient and favorable financial support for homeownership dreams.

What is FHSA

Account Comparison

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What is FHSA

The First Home Buyer Saving Account (FHSA) is a specialized registered account introduced by the Canadian government in 2023. It is designed for targeted savings and exclusively earmarked for purchasing your first home. Funds within the account, when used for acquiring your initial property, are entirely tax-free upon withdrawal.

If you wish to open an FHSA account, you must meet at least...

  • Be at least 18 years old and less than 71 years old by December 31 of the current year to qualify for opening an FHSA account.
  • The account holder must be a resident of Canada.
  • In the current year and the past four years, neither the account holder nor their spouse must have owned a property in Canada, and neither has designated any property owned by them or their spouse as their principal residence.

The FHSA account can be held for a maximum of 15 years. Accounts can be opened through various financial institutions that offer TFSA and RRSP services, including banks, credit unions, life insurance companies, and Canadian trust companies.

FHSA contributions and withdrawal requirements

After opening an account, there is an annual contribution limit of $8,000, with a lifetime maximum contribution limit of $40,000 per individual or $80,000 for a couple. Unused contribution room, up to $8,000, can be carried forward to the next year. For example, if you open an FHSA in 2023 and contribute $5,000, you can contribute a maximum of $11,000 in 2024. The carried-over amount accumulates only after opening an FHSA. Multiple FHSAs can be opened, but the total contributions across all accounts must not exceed the annual and lifetime contribution limits.

Because the FHSA savings account is designed to assist homebuyers, only withdrawals for the purpose of purchasing a home are eligible for tax-free treatment. To qualify for eligible withdrawals, you must:

  • Be a first-time homebuyer in Canada;
  • Reside in Canada at the time of withdrawal;
  • Have a written agreement to purchase or build a home in Canada by October 1 of the year following the withdrawal year. For example, if you plan to withdraw funds from your FHSA account on December 1, 2023, you must have such an agreement in place by October 1, 2024.
  • Intend to use the home as your principal residence within one year after purchasing or building it.

If your withdrawal does not meet the above conditions, it will be considered ineligible.

Withdrawals from FHSA that do not meet the conditions will be added to your taxable income, potentially resulting in a significant tax liability. Your FHSA issuing institution will also withhold taxes on non-qualified withdrawals, consistent with the treatment applicable to taxable RRSP withdrawals. It is important to note that penalties can be substantial, so extra caution is advised.

However, you can transfer money from your FHSA savings account to an RRSP or RRIF tax-free. These transfers won't reset your lifetime FHSA contribution limit but also won't reduce your RRSP contribution room.

Suitable Investment Products

The investment products available in FHSA are similar to those in TFSA and RRSP. Income and capital gains (as well as capital losses) generated within FHSA are not included in your annual income (or deduction) calculations. This means that income and capital gains within FHSA can compound on a tax-free basis.

Segregated Funds

The value of Segregated Funds, a type of investment product, often fluctuates and there's no guaranteed investment return. However, when the Segregated Fund contract matures or in the event of your passing, if your account is in a loss position, the contract guarantees you'll receive 75% or 100% of your principal. You can purchase Segregated Funds using various accounts, including but not limited to TFSA, RRSP, RESP, Non-Reg, etc.Learn more about Seg-Fund

Mutual Funds

The value of Mutual Funds often fluctuates and there's no guarantee of investment returns, nor is the principal protected from loss.

Stock

Stocks represent ownership in a company and serve as ownership certificates issued by the company to shareholders as evidence of holding shares. They're issued by companies to raise funds from shareholders, entitling them to dividends and potential capital gains.

Bond

Bonds are debt securities issued by governments, financial institutions, businesses, and other entities to raise funds from the public. They are issued to investors and promise to pay interest at a specified rate and repay the principal under agreed-upon conditions.

ETF

ETF, Exchange-Traded Funds, are open-ended funds that can be freely bought and sold on a stock exchange by investors. They track various indexes and provide exposure to a wide range of assets.

Cash & GIC

Guaranteed Investment Certificates, are secure investments that promise a defined amount at the end of their term. The return based on the interest rate. While the returns are guaranteed, if inflation occurs in the economy, the returns may not keep pace with inflation and the value of the GIC may be reduced.

Account Comparison

Comparing FHSA with RRSP and TFSA

The FHSA is a registered plan that combines certain features of both RRSP and TFSA, designed to assist you in saving for your first home purchase!

FHSA RRSP TFSA
How does this plan help me？ Investing with contributions and using them to purchase a first home. You can borrow up to $35,000 from your existing RRSP, but the borrowed funds must be paid back within 15 years. Invest with contributions, enjoy tax-free returns, and use the funds to purchase a home.
What are the contribution rules? The annual contribution limit is $8,000. The individual's lifetime contribution limit is $40,000. Contribute the lower of 18% of your previous year's income or the current fixed contribution limit of $30,780 for 2023. There is no lifetime contribution limit. The annual contribution limit for 2024 is $7,000, and the limit is cumulative. Click to learn more.
Is it eligible for tax deductions? Eligible contributions are tax-deductible, excluding funds transferred from RRSP to FHSA. Eligible contributions are tax-deductible (except on transfers into your RRSP from your FHSA). Contributions are not eligible for tax deductions.
Key Advantages Invest with the funds in the account, and profits are tax-free. Additionally, you may be able to transfer funds tax-free from FHSA to RRSP or RRIF. Funds can be used to purchase a qualifying home through the HBP. Investment profits within the plan are tax-deferred. The funds in the account can experience tax-free growth and can be utilized for various expenses, including homeownership.
Limitation Terms The ownership period of the FHSA ends on the earliest of the following dates: the 15th anniversary of opening your first FHSA account, the December 31 of the year you turn 71, or the year following the first eligible withdrawal. Non-qualifying withdrawals (withdrawals not used for the purchase of a qualifying home) are considered taxable income. According to the HBP plan, any RRSP withdrawal used to purchase or build a qualifying home must be repaid to your RRSP within 15 years, starting from the second year following the year of your initial withdrawal. Failure to repay the required amount within the specified timeframe will be treated as taxable income for that year. Contributions made to a TFSA are not eligible for tax deductions.

FAQ

  • You can transfer funds from your RRSP to your FHSA on a tax-free basis. These transfers are subject to FHSA annual and lifetime contribution limits. Such transfers are not deductible from income.
  • Transfers from an RRSP to an FHSA do not restore your RRSP contribution room.
  • In-kind transfers will not be available for the FHSA at this time.
  • You must be a first-time homebuyer and a resident of Canada at the time of the withdrawal for the acquisition of your qualifying home.
  • A "qualifying home" is defined as a housing unit located in Canada. It also includes a share of the capital stock of a cooperative housing corporation, where the holder of the share is entitled to possession of a housing unit located in Canada.
  • You must have a written agreement to buy or build a qualifying home located in Canada before October 1 of the year following the year of withdrawal.
  • You must also intend to occupy the qualifying home as your principal place of residence within one year of buying or building it.
  • Funds withdrawn from your FHSA that are not used to purchase a qualifying home are subject to income tax.
  • Alternatively, the balance in your FHSA not used to purchase a qualifying home could be transferred to an RRSP or RRIF (Registered Retirement Income Fund) on a non-taxable transfer basis, subject to applicable rules.
  • Transfers from your FHSA to your RRSP or RRIF do not impact your available RRSP contribution room.
  • The funds transferred to an RRSP or RRIF will be taxed upon withdrawal.

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Investment Basics >

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Fund Products >

With segregated funds, AiF's professional investment capabilities deliver double-digit annual returns.

Personalized Financial Consultation >

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Regularly organizing offline and online events aimed at enhancing financial literacy among Canadians.

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