What is a First Home Savings Account? Unlocking Tax-Free Savings

What Is FHSA in Canada?

The journey of buying your first home just got brighter with the Tax-Free First Home Savings Account (FHSA). This innovative solution allows aspiring homeowners to save efficiently while enjoying tax benefits. Let's get into how the FHSA works and explore its myriad advantages.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

What Is the FHSA?

FHSA stands for First Home Savings Account. It's a registered savings plan that lets Canadians aiming for homeownership save up to $40,000 toward their eventual down payment without being taxed. Similar to the RRSP (Registered Retirement Savings Plan), adding to your FHSA is tax-deductible on your income tax return.

When you finally use your FHSA to purchase or build a home, the withdrawal is tax-free, and anything you don't use can be transferred to an RRSP or Registered Retirement Income Fund without tax.

It's a bit like a hybrid between the RRSP and the TFSA. You get a tax deduction on contributions, and your withdrawals are tax-free. It just as an additional layer of needing to be used for a first home.

How Does the FHSA Work?

Contributing to an FHSA reduces your taxable income and accelerates your journey toward homeownership. Here's a deeper look into its workings:

  • Lifetime Contribution Limit: The FHSA has a specific lifetime contribution limit of $40,000. Once this cap is reached, no further contributions can be made.
  • Annual Contribution Limit: The annual contribution limit for the FHSA is $8,000. This limit sets a cap on how much you can contribute each year, allowing for strategic saving.
  • Contribution Room and Carry Forward: You're allotted a specific contribution room each year. If unused, this room can be carried forward to subsequent years, allowing flexibility in your saving pattern.
  • Tax-Free Growth: Investment income earned within the FHSA, whether through guaranteed investment certificates, mutual funds, or other qualified investments, grows tax-free.
  • Withdrawal Conditions: Withdrawals for a qualifying home purchase are tax-free. It includes funds used towards a principal residence, meeting criteria set by the Canada Revenue Agency.
  • Tax Implications: Contributions to the FHSA offer an income tax deduction, similar to RRSP contributions, reducing your taxable income for the year.
  • FHSA and RRSP/TFSA: You can transfer funds from your RRSP to the FHSA without affecting your RRSP contribution room. However, these transfers count towards your FHSA annual and lifetime limits.
  • Participation Period: Your participation period begins when you open the account and ends either on December 31st of the 15th year your account is open, the year you turn 71, or the year following your first qualifying withdrawal.

The FHSA is an incredible asset for first-time homebuyers, simplifying the process of saving for a home on a tax-free basis. The FHSA provides a structured and beneficial way to accumulate funds for your future home.

Navigating Contributions and Withdrawals

What's the Contribution Limit for FHSA?

In the world of the FHSA, knowing how to manage contributions and withdrawals can greatly impact your path to homeownership. This section focuses on the specific limits and regulations that govern how you can contribute to and withdraw from your FHSA, providing clarity on how to utilize this account effectively.

Contribution Limits and Rules

The FHSA has specific contribution limits that are crucial to understand:

Lifetime Contribution Limit: The FHSA features a lifetime contribution limit of $40,000. Once you reach this limit, you cannot make further contributions. Any transfers you make from other accounts, such as an RRSP, count toward this limit.

Annual Contribution Limit: You're allowed to contribute $8,000 each year, whether that's directly or by transferring from another account. This is called your contribution room and is refreshed each year.

If you exceed the $8,000 limit, you must file a return to report the excess and you'll pay a 1% tax on the highest excess amount in that month. For example, if you contribute $9,000, and partway through the month you take out $500, you'll pay the tax on $1,000, not the $500 excess you had at the end of the month.

You'll continue to pay the 1% tax each month until the excess is eliminated, either by you taking out the excess or by your contribution room refreshing at the start of the year. When you contribution room refreshes, your excess counts as part of your contribution for the next year, reducing your contribution room.

You can take out the excess either by a designated withdrawal (which cannot be more than the excess amount), a designated transfer to an RRSP or RRIF, or a taxable withdrawal which must be included as income on your tax return. There are some additional rules on whether you can make a transfer or withdrawal, depending on the source of the excess. For example, if you only added to your account through RRSP transfers, you can't eliminate the excess with a designated withdrawal; you can only send money back to your RRSP.

  • Another source of potential confusion is whether the income your account generates counts as a contribution. The answer is no; the income your account earns does not count toward your contribution room. No matter how much your account increases in value through investing the funds or other returns, you'll still be able to deposit $8,000 next year.

Unused Contribution Room: If you don't contribute the full $8,000 in a year, the unused portion can be carried forward to the following year. However, the maximum amount of unused FHSA participation room to be carried forward to a subsequent year is $8,000. So, for instance, if you don't make a contribution for three years, you'll only be able to contribute $16,000 the next year, not $32,000.

Tax Deductible Contributions: Contributions made to the FHSA are generally tax-deductible, which means they can reduce your taxable income for the year.

Opening Multiple Accounts While you can open multiple FHSAs, the total contribution limits share the same lifetime and annual contribution limits. If you open two FHSAs, you can still only contribute $8,000 total each year, not $16,000.

However, you can use multiple accounts, such as your FHSA, RRSP, and TFSA, to make a single down payment.

You cannot directly make contributions to someone else's FHSA. In addition, only the FHSA holder can claim the contributions as a tax deduction. In some cases, a surviving spouse or common-law partner can take over an FHSA.

Withdrawing from Your FHSA

Specific rules govern withdrawals from the FHSA:

Qualifying Withdrawals: To withdraw funds tax-free, they must be used for a qualifying home purchase, including buying or building a home. Many types of property qualify, including a share in a co-op that entitles you to own and gives you equity interest. A share that only provides you the right to tenancy does not qualify.

Written Agreement: You must have a written agreement to buy or build a qualifying home located in Canada before making a tax-free withdrawal. The purchase or completion date must be before October 1st of the year following the date of the withdrawal. You must also either occupy or inted to occupy the home as your principal residence within one year after the purchase or completion.

First-Time Homebuyer Requirement: To make a qualifying withdrawal, you must be a first-time homebuyer and a resident of Canada. This means that you did not live in a home you owned or jointly owned at any point within the current year or the previous four years. (The 30 days before the withdrawal are an exception to this rule.)

  • This is different than the definition of a first-time homebuyer for the purpose of opening the account in the first place. For opening the account, you also need to either have not lived in a home owned or jointly owned by your spouse or common-law partner, or not have a spouse or common-law partner at all.

Non-Qualifying Withdrawals: If funds are withdrawn and not used to purchase a qualifying home, they are subject to income tax. Alternatively, the balance in the FHSA not used for a qualifying home purchase could be transferred to an RRSP or RRIF (Registered Retirement Income Fund) on a non-taxable transfer basis.

Multiple people can individually withdraw from their FHSAs to purchase the same home, provided that they each meet all of the requirements for withdrawal.

Once your FHSA is used to purchase or build a home, you should close your account(s) on or before December 31st of the next year.

Understanding these rules will help you maximize the benefits of the FHSA and effectively plan for purchasing your first home. For more detailed information, you can visit the Canada Revenue Agency website.

Comparing FHSA with Other Savings Options

Is FHSA Better Than TFSA?

Comparing the FHSA with the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP) reveals key differences and benefits, particularly for those saving for a home.


  • Annual Contribution Limit: $8,000, with the possibility to carry forward unused room up to a maximum lifetime limit of $40,000.
  • Tax Deduction: Contributions are generally tax-deductible.
  • Withdrawals for Home Purchase: Qualifying withdrawals, which include the original contributions and any investment income, are tax-free when used for a qualifying home purchase.
  • Eligibility: Available to Canadian residents who are first-time homebuyers aged 18 to 71.
  • Key Advantage: The funds in the account grow tax-free, potentially leading to more savings for a home purchase.
  • Limitations: The account can only be held until the end of the year when you turn 71, the 15th anniversary of opening your first FHSA, or the year following your first qualifying withdrawal.

RRSP (including Home Buyers' Plan - HBP):

  • Annual Contribution Limit: The lesser of 18% of the previous year's income or the current fixed contribution limit (e.g., $30,780 for 2023).
  • Tax Deduction: Contributions are tax-deductible.
  • HBP Withdrawal: Up to $35,000 can be borrowed for a qualifying home purchase, but this amount must be repaid within 15 years.
  • Eligibility: Available to Canadian residents who have earned income and filed a tax return in Canada up to age 71.


  • Annual Contribution Limit: $7,000 for 2024, with unused contribution room being carried forward. The limit is adjusted yearly.
  • Tax Deduction: Contributions are not tax-deductible.
  • Withdrawals: These can be made at any time for any purpose, including a home purchase, and are tax-free.
  • Eligibility: Available to Canadian residents aged 18 or older with a valid Social Insurance Number. There is no upper age limit, unlike FHSA and RRSP.

Choosing the Right Account

The choice between FHSA, TFSA, and RRSP depends on individual financial goals and circumstances.

  • The FHSA is specifically beneficial for first-time homebuyers due to its tax-free growth, withdrawal for home purchases requirement, and the tax deductibility of contributions.
  • The RRSP, particularly with the Home Buyers' Plan, is suitable for those looking to use retirement savings towards a home purchase, but it requires repayment.
  • The TFSA offers flexibility with tax-free withdrawals for any purpose and no repayment requirements, making it a versatile savings tool.

Making the Most of Your FHSA

Each calendar year brings new opportunities to contribute to your FHSA, and managing these contributions effectively can lead to substantial benefits when it's time to make that first qualifying home purchase.

Investment Options Within FHSA

To maximize the potential of your FHSA, it's essential to explore diverse investment options:

  • Mutual Funds and GICs: These can balance risk and return, catering to different investment strategies.
  • Bonds: A safer investment option, offering steady income through fixed interest payments.
  • Exchange-Traded Funds and Securities: For those willing to take more risk, investing in stocks can offer higher returns.
  • Corporation Shares: If you're interested in investing in small business, you can invest in shares of some corporations.
  • Diversification: Combining different types of investments can help balance risk and return.

Managing Tax Implications

Effective management of your FHSA can have significant tax implications:

  • Withholding Tax: Be mindful of the withholding tax implications for non-qualifying withdrawals.
  • Annual and Lifetime Limits: Stay within the $8,000 annual and $40,000 lifetime contribution limits to avoid penalties.
  • Federal Government Regulations: Ensure compliance with regulations outlined in the Income Tax Act.
  • RRSP Room Impact: Understand how transferring funds from an RRSP can affect your RRSP contribution room.
  • Tax-Free Withdrawals: Utilize the FHSA for its intended purpose—a qualifying home purchase—to benefit from tax-free withdrawals.
  • Consult a Tax Advisor: Given the complexity of tax laws, consulting a tax advisor for personalized advice can be beneficial.

FHSA and Your Home Buying Journey

Successfully transitioning from saving in your FHSA to using those funds for a home purchase can significantly impact your financial well-being and homeownership journey. It's advisable to consult with a financial advisor to make the most of your FHSA in alignment with your overall financial plan.

Planning Your Down Payment with FHSA

Here are some strategies to effectively use the FHSA for this purpose:

  • Regular Contributions: Consistently contribute to your FHSA to maximize the annual limit of $8,000, benefiting from the tax deductions and the growth of your savings.
  • Maximizing the Lifetime Limit: Aim to reach the $40,000 lifetime contribution limit of the FHSA to fully utilize its potential for your down payment.
  • Investment Growth: Choose investments within the FHSA wisely to grow your down payment fund. Consider options like mutual funds, GICs, or bonds based on your risk tolerance.
  • Monitoring Progress: Regularly check the growth of your FHSA funds and adjust your savings plan accordingly to meet your down payment goals.

Transitioning from Saving to Buying

Moving from the saving phase to buying your first home involves careful timing and decision-making:

  • Assessing Readiness: Before withdrawing, assess if you have saved enough for a substantial down payment and are ready to commit to a mortgage.
  • Qualifying Home Purchase: Ensure your home purchase qualifies under the FHSA rules. It includes buying a principal residence in Canada that you intend to occupy.
  • Coordinating with Mortgage Approval: Align your FHSA withdrawal with your mortgage approval timeline to ensure the funds are available when needed.
  • Closing the FHSA: Remember, the FHSA must be closed by 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.

Frequently Asked Questions

What Is the 15-Year Rule for FHSA?

The 15-year rule for the Tax-Free First Home Savings Account (FHSA) refers to the time limit for closing the account. Specifically, all of your FHSAs must be closed by December 31st of the year that marks the 15th anniversary of opening your first FHSA. This rule ensures that the account is used within a reasonable timeframe for its intended purpose—facilitating the purchase of a first home.

If you don't make a home purchase within this timeframe, you can transfer the funds to a different savings account or make a tax-free withdrawal. You are not obligated to purchase a home by opening a FHSA.

Can I Withdraw from FHSA Anytime?

Withdrawals from the FHSA can be made anytime, but they must be used for a qualifying home purchase to retain the tax-free status. Withdrawals for purposes other than buying a qualifying home are subject to income tax.

Unlike RRSPs, there is no minimum time before funds can be withdrawn. This flexibility allows first-time homebuyers to access their funds when purchasing a home.

Do I Qualify for FHSA?

To qualify for an FHSA, you must be a Canadian resident, at least 18 years old, and a first-time homebuyer. A first-time homebuyer is someone who has not lived in a home that they or their spouse/common-law partner owned during the year the account was opened or in the preceding four calendar years.

What Is the Difference Between a TFSA and a First Home Savings Account?

The key difference between a Tax-Free Savings Account (TFSA) and a First Home Savings Account (FHSA) is their purpose and tax treatment. While both accounts allow for tax-free growth of investments, the FHSA is specifically designed for saving towards a first home purchase and offers tax-deductible contributions, unlike the TFSA. Also, withdrawals from the FHSA for home purchases are tax-free, whereas tax-free TFSA withdrawals can be for any purpose.

What Is the 30-Day Rule for FHSA?

The 30-day rule for the FHSA refers to you being able to own or jointly own a home for up to 30 days before making a qualifying withdrawal. So long as you don't own a home longer than 30 days, you still count as a first-time homebuyer for the purposes of FHSA withdrawals.

Is FHSA Better Than TFSA?

Whether an FHSA is better than a TFSA depends on your financial goals. The FHSA is ideal for first-time homebuyers due to its tax benefits specifically tailored for home purchases, including tax-deductible contributions and tax-free withdrawals for home buying. The TFSA offers more flexibility as funds can be withdrawn for any purpose, but contributions are not tax-deductible.

When Can I Open a FHSA Account?

The Tax-Free First Home Savings Account (FHSA) is available to eligible individuals. If you meet the eligibility criteria—being a Canadian resident, at least 18 years old, and a first-time homebuyer—you can open an FHSA with participating financial institutions.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Is British Columbia calling your name? Call The Fenton Group at 250-723-8786 to talk with a local real estate agent who can help you find your dream home in British Columbia.

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