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Beginner guide
FHSA explained
The First Home Savings Account (FHSA) is a registered account for Canadians saving for their first home. It combines two tax breaks that normally come separately: contributions are tax-deductible like an RRSP, and qualifying withdrawals are tax-free like a TFSA.
Limits and rules are set by the federal government and can change. Check the Canada Revenue Agency's FHSA page and your FHSA room in CRA My Account before contributing.
Who can open an FHSA
To open one, you generally need to be:
- a resident of Canada,
- at least 18 (or the age of majority in your province, if that's higher) and no older than 71 at the end of the year, and
- a first-time home buyer under the CRA's definition: at any time in the year you open the account, or in the previous four calendar years, you didn't live in a home that you, or your spouse or common-law partner, owned as your main home.
That last test surprises people. If you already own and live in a home, you usually can't open an FHSA, even if you've never used one before.
How much you can contribute
- Annual limit: $8,000 a year.
- Lifetime limit: $40,000.
- Carry-forward: unused room from one year carries forward, but only up to $8,000. So the most you can put in during a single year is $16,000.
- Room starts when you open the account, not when you turn 18. Opening one early, even with a small deposit, starts building room.
Putting in more than your room allows is an over-contribution, which is taxed at 1% a month on the excess until it's removed.
The tax breaks
Going in: contributions can be deducted from your taxable income, which can produce a tax refund. You don't have to claim the deduction in the year you contribute. You can save it for a later year when your income, and tax rate, is higher.
While invested: interest, dividends and capital gains inside the account aren't taxed.
Coming out: a qualifying withdrawal to buy your first home is completely tax-free. You'll need a written agreement to buy or build a qualifying home in Canada that you intend to live in, and you fill in the CRA's withdrawal form with your FHSA provider.
What you can hold in an FHSA
An FHSA can hold the same kinds of investments as a TFSA or RRSP: cash, GICs, bonds, stocks and ETFs. What fits depends mostly on your timeline. Money you need for a down payment in a year or two is exposed to market drops if it's in stocks, so many people shift to safer holdings as the purchase gets close. Our guide to ETFs covers the basics of fund investing.
What if you never buy a home?
This is what makes the FHSA low-risk to open. If you don't use the money for a home, you can transfer it to your RRSP or RRIF tax-free, and the transfer doesn't use up your RRSP contribution room. You keep the deduction you already received, and the money keeps growing for retirement.
If you withdraw the money for something else instead, the withdrawal is added to your taxable income for that year.
An FHSA has a maximum life: it must be closed by the end of the 15th year after you first opened one, the end of the year you turn 71, or the end of the year after your first qualifying withdrawal, whichever comes first. Any money left can be moved to an RRSP or withdrawn as taxable income.
FHSA vs RRSP Home Buyers' Plan vs TFSA
| FHSA | RRSP Home Buyers' Plan | TFSA | |
| Contributions deductible | Yes | Yes | No |
| Withdrawal for a home | Tax-free | Tax-free, but must be repaid over time | Tax-free |
| Must be a first-time buyer | Yes | Yes | No |
| If you don't buy | Move to RRSP tax-free | Money stays in RRSP | Use for anything |
You can use the FHSA and the Home Buyers' Plan for the same home purchase, which some buyers do to combine both. See our TFSA vs RRSP guide for how those two accounts compare more generally.
Common mistakes
- Waiting to open one. Room only builds once the account exists.
- Counting room from age 18. Unlike the TFSA, there's no automatic room for past years.
- Taking market risk too close to the purchase. A 20% drop the month before you buy is hard to recover from.
- Assuming you qualify after owning before. Check the four-year rule carefully if you or your partner has owned a home.
Sources
Keep learning
This guide is for education only. It isn't personalized financial, investment or tax advice, and nothing here is a recommendation to buy or sell any security. Investing involves risk, including the possible loss of your money.