The FHSA, explained in one sitting
Deductible going in, tax-free coming out for a first home. The rules that matter, and the one reason to open it early even with $0.
The First Home Savings Account combines the best feature of the RRSP with the best feature of the TFSA. Contributions are deductible, and withdrawals for a qualifying first home are not taxed. If you might buy a home in the next fifteen years, it deserves a look.
Who can open one
According to the CRA, you can open an FHSA if you are:
- a resident of Canada;
- at least 18, or the age of majority in your province if it is higher (19 in some provinces), and no older than 71 on December 31 of the year you open it;
- a first-time home buyer: in the year you open the account, or in any of the four previous calendar years, you did not live in a home you owned or jointly owned as your principal residence, or one owned by your current spouse or common-law partner.
The limits, in plain numbers
| Limit | Amount |
|---|---|
| Room in the year you open your first FHSA | $8,000 |
| Maximum unused room you can carry forward to the next year | $8,000 |
| Most you could contribute in a single year, with full carry-forward | $16,000 |
| Lifetime limit on contributions and RRSP transfers | $40,000 |
Two details trip people up. Unlike TFSA room, FHSA room only starts once you open your first account; the carry-forward in the year you open it is $0. And only one year's unused room carries forward, up to $8,000. Skip two years and the earlier one is not added on top.
How the tax works
- Going in: contributions are deductible, like an RRSP, which lowers your taxable income at your marginal rate. You can also carry an unused deduction forward to a later, higher-income year.
- While invested: growth is sheltered from tax.
- Coming out: a qualifying withdrawal to buy a qualifying first home is not taxed. Other withdrawals are added to your income.
The FHSA has no 60-day grace period. Contributions count for the calendar year in which you make them, so December 31 is the deadline that matters; see key tax-season dates.
The 15-year window
Your maximum participation period starts when you open your first FHSA. It ends on December 31 of the year in which the earliest of three events happens: the 15th anniversary of opening your first FHSA, you turn 71, or the year after your first qualifying withdrawal.
If you never buy a home
This is what makes the FHSA low-risk. Before the participation period ends, you can transfer the balance to an RRSP or RRIF tax-free, and the transfer does not use up your RRSP contribution room. If you would have saved in an RRSP anyway, an FHSA you never use for a home still leaves you with extra deductible room. If you simply withdraw the money instead, the withdrawal is taxable.
FHSA, RRSP or TFSA for a down payment?
For an eligible first-time buyer, the FHSA usually comes first. It is the only one of the three that is both deductible going in and tax-free coming out. A TFSA is the flexible second layer, and the RRSP Home Buyers' Plan is a third option with repayment rules. Rules for combining them have conditions; read the CRA's FHSA pages or speak to a professional before you rely on all three at once.
Where to keep it
An FHSA can hold cash, GICs, funds or listed securities, depending on the issuer. The right mix depends on when you plan to buy: money needed in two years is a different problem from money needed in twelve. Keep in mind that eligible deposits in an FHSA can be covered by CDIC deposit insurance; investments such as stocks and funds are not.
- Confirm you meet the first-time home buyer definition.
- Open the account to start your room, even with a small amount.
- Contribute by December 31 for the deduction to count that year.
- Note the year your 15-year window ends.
Noted.
Sources
Figures in this note were checked against these sources on the date shown above.
This note is general education, not personal financial, tax or legal advice. Rules and figures change; confirm with the source and, where needed, a qualified professional. Terms are defined in the glossary.
