What is an FHSA? The First Home Savings Account explained

The FHSA in two sentences

An FHSA, or First Home Savings Account, is a registered account that helps first-time buyers in Canada save for a home. Contributions can be deducted from your income like an RRSP, and a qualifying withdrawal to buy your first home is tax-free like a TFSA. That mix of a deduction going in and no tax coming out is what makes the FHSA different from the other accounts. Like a TFSA or RRSP, it’s a container: it can hold savings, GICs, funds or stocks, depending on which financial institution you open it with and what it offers.

Who can open an FHSA

To open an FHSA, you need to be a resident of Canada and at least 18, or 19 where that is the age to sign contracts. You also need to be 71 or younger on December 31 of the year you open it. And you must count as a first-time home buyer under the CRA’s definition.

That definition is wider than it sounds. Broadly, you qualify if you haven’t lived in a home you owned, alone or jointly, as your main residence during the current calendar year or the previous four. A similar test applies to a home owned by a spouse or common-law partner. So someone who sold a condo years ago may qualify again.

How FHSA contributions and room work

Your FHSA room only starts building once you actually open your first account. That’s a key difference from a TFSA, where room builds from age 18 whether you have an account or not. If you don’t use your room in a year, you may be able to use some of it the following year. There is also a lifetime limit, set by the federal government.

Because the rules on annual amounts, carry-forward and lifetime limits are specific, the safest way to know your own room is to look it up. After you file, your FHSA room appears on your notice of assessment, and you can see it any time by signing in to your CRA account.

Using your FHSA to buy a first home

A qualifying withdrawal lets you take out everything in your FHSAs tax-free, all at once or in several withdrawals. To qualify, you generally need to be a first-time home buyer at the time, have a written agreement to buy or build a home in Canada, be a resident of Canada, and intend to live in the home as your main residence within a year of buying it.

You request it by giving your financial institution a CRA form, RC725. After your first qualifying withdrawal, the CRA asks you to close your FHSAs by December 31 of the following year. It’s worth reading the conditions on canada.ca, or asking your institution, well before your closing date. Leave yourself some breathing room, since paperwork tends to pile up in the last weeks before a purchase.

If you don’t end up buying

Plans change, and the FHSA has a way out. A direct transfer from your FHSA to your RRSP or RRIF is tax-free and doesn’t use up your RRSP deduction room. The money keeps growing for retirement instead. The transfer has to go directly between accounts. If you withdraw the cash first, it’s treated as a taxable withdrawal.

Any withdrawal that isn’t a qualifying withdrawal or a direct transfer is added to your income for that year. The account also has a time limit, which the CRA calls the maximum participation period, after which it must be closed. Knowing these rules up front helps you treat the FHSA as a low-risk choice even if buying isn’t certain.

How the FHSA fits with a TFSA and RRSP

You can have an FHSA, a TFSA and an RRSP at the same time, and each has its own room. People saving for a first home often think about the FHSA first because it combines a deduction with a tax-free withdrawal, then use a TFSA for goals that need more flexibility. This is general information, so check how the rules apply to you before deciding.

Questions

Is the FHSA tax-deductible?

Yes. FHSA contributions can generally be deducted from your income on your tax return, much like RRSP contributions, and a qualifying withdrawal to buy your first home is tax-free.

What happens to my FHSA if I don’t buy a house?

You can transfer the money directly to your RRSP or RRIF tax-free without using your RRSP deduction room. If you withdraw it as cash instead, the amount is added to your taxable income for that year.

Can I have an FHSA and a TFSA at the same time?

Yes. The FHSA, TFSA and RRSP each have separate contribution room, so you can hold all three at once if you’re eligible for each.