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    FHSA 101: How does the First Home Savings Account work?

    Are you planning to buy your first home? The Tax-Free First Home Savings Account (FHSA) is a great way to help you save for your down payment. Starting April 1, 2023, Canadians can make contributions of up to $8,000 a year to a maximum of $40,000 to save towards their first home. 

    Contributions to the FHSA are deductible against income, and any amounts and interest earned on investments will be tax-free upon withdrawal. The FHSA acts similarly to a TFSA or an RRSP — sounds like a win-win! 

    In this blog, you’ll learn: 

    • Why you should get a First Home Savings Account
    • Eligibility and features
    • How it differs from the Home Buyers Plan, the TFSA and an RRSP 
    • Frequently asked questions 

    See what’s new with the Tax-Free First Home Savings Account on the CRA website. 


    What is the First Home Savings Account?

    The First Home Savings Account, or FHSA, is a savings account for new home purchases. It combines the features of a registered retirement savings plan (RRSP) and a Tax-Free Savings Account (TFSA), letting Canadians over 18 save up to $40,000 for their first home. The only catch is that you must use these funds within 15 years of opening the FHSA or before you turn 71, whichever is earlier. 

    Like an RRSP, you can make tax deductions on your income. And like a Tax-Free Savings Account, your investments can grow without a tax bill. Any money you put in and earn within this account goes toward the down payment on your first home. Withdrawals are also tax-free. 


    Why invest in the FHSA?

    There are many advantages to saving in the First Home Savings Account. You can: 

    • Save up to $40,000 for your first home
    • Contribute tax-free for up to 15 years
    • Carry forward unused contribution room AND un-deducted contributions 
    • Reduce your tax bill 
    • Pay zero taxes on any investment earnings 


    Eligibility and features 

    To be eligible for the FHSA, you need to meet the following criteria: 

    • You’re a resident of Canada
    • You are at least 18 years old 
    • You are a first-time homebuyer, meaning you and your spouse have not owned a home you lived in within the last four calendar years. 

    Your account can remain open for 15 years, until you turn 71 or at the end of the year after you make a qualifying withdrawal for the first home purchase (whichever comes first). 

    Contribution limits

    You can claim an income tax deduction for contributions made in a tax year, capped at $8,000 annually and $40,000 in total. 

    You may also carry forward unused contribution room to the following year, up to $8,000. 

    An important note is that the $8000/year does not automatically start when you turn 18, it starts only once you open an FHSA for the first time.


    If you make a qualifying withdrawal, you don’t pay tax on it. However, if you make a non-qualifying withdrawal, you would pay income tax on the principal and the growth. 

    A qualifying withdrawal means: 

    • You’re a first-time homebuyer and a resident of Canada at the time of withdrawal
    • You have a written agreement to buy or build a qualifying home in Canada before Oct. 1 of the year following the year of the withdrawal 
    • You intend to occupy the qualifying home as your principal place of residence within one year of buying or building it 


    FHSA vs. Home Buyers’ Plan 

    The Home Buyers’ Plan (HBP) allows you to withdraw from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or a related person with a disability. 

    Currently, the Home Buyers’ Plan or HBP withdrawal limit is $35,000, meaning Canadians can withdraw up to this amount from the RRSP, then must pay back the funds over 15 years. It’s considered a “loan.” After you’ve paid the money back, withdrawals are ultimately taxed when they are again taken out of the RRSP account.

    Unlike the HBP, you won’t need to pay back the funds with the First Home Savings Account, and there’s no withdrawal amount limit. Qualifying withdrawals are also tax-free. 

    Did you know that you can combine the FHSA and the HBP? You can maximize both programs and put up to $75,000 (plus any investment growth in the FHSA) toward a down payment. 


    FHSA vs. RRSP and TFSA 

    Is the Tax-Free First Home Savings Account really the best of both worlds? Let’s compare. 


    Like an RRSP, contributions to an FHSA are tax-deductible today.

    With RRSPs or the Home Buyers’ Plan, you can withdraw up to $35,000 of your RRSP tax-free toward a new home purchase. However, you will need to pay this money back within 15 years. With the First Home Savings Account, you won’t need to replace those funds. 


    Like a TFSA, amounts withdrawn from the FHSA are non-taxable if buying a home.

    The Tax-Free Savings Account (TFSA) program lets individuals 18 and older set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. 

    Your maximum contribution of $40,000 to a First Home Savings Account will compound and grow tax-free. However, unlike the TFSA, you won’t have flexibility in how you use your savings. The account is designed for the purchase of your first home, so any unrelated withdrawals will be taxed. 





    Home Buyers’ Plan

    Who is eligible?

    Canadian resident over 18 who hasn’t owned a home in the previous 4 years

    Valid social insurance number; over 18 

    Canadian resident or non-resident under 71

    Canadian resident under 71

    Tax-deductible contributions





    Tax-free withdrawals





    Contribution limit

    $8,000 per year; $40,000 maximum 

    Subject to CRA regulations

    Subject to CRA regulations


    Account life

    Dec. 31 of the year after 15 years
    When the plan holder turns 71
    One year after qualifying withdrawal 


    Dec. 31 of the year after the plan holder turns 71 


    FAQ about the FHSA 

    When will the First Home Savings Account be available? 

    A new savings vehicle for Canadians saving towards their first home purchase will technically be available starting April 1, 2023. Still, some financial institutions say they won’t be ready to offer the account yet

    What types of investments can an FHSA hold?

    The allowable investments for FHSAs are the same as for TFSAs. These include mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates.

    What if you don’t use the FHSA funds to buy a first home?

    If you don’t make a qualifying first home purchase by the end of the 15th year after the plan was opened or the end of the year you turn 71 years old, you will need to close the FHSA plan. Any unused balance can be transferred into an RRSP or RRIF or withdrawn on a taxable basis. 


    Our Chartered Professional Accountant (CPA) professionals have extensive knowledge of the changing tax laws. Let us help you with deductions, write-offs, expenses, tax returns, GST filing and more.

    Find more Strategic Advisory topics relevant to you and your small business. 


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