What is the First Home Savings Account (FHSA)?

Buying a home for the first time is an important milestone for any Canadian. Given the current economic landscape and real-estate market, owning a home can feel out of reach for some. If you’re looking to save for a home, you might consider using a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) or just a regular savings account. There is now a helpful new registered plan, the Tax-Free First Home Savings Account (FHSA). In the 2022 Federal Budget, the Government of Canada announced the creation of the FHSA, which is designed to help you save towards the purchase of your first home on a tax-free basis. 

Key FHSA product features

• Eligibility: Canadians who are 18+ and haven’t owned a home or lived in a home owned by their spouse or common-law partner, in the current calendar year and previous four calendar years.
• Contributions: $40,000 lifetime limit, subject to an annual contribution limit of $8,000. Contributions are tax deductible.
• Qualified Holdings: Can hold the same types of investments that are available for TFSAs. All investment growth is tax-sheltered.
• Withdrawals: Allows you to make tax-free withdrawals for a single property purchase. Amounts that are withdrawn for other purposes are taxable.
• Maturity: If FHSA funds have not been used for a qualifying first home purchase within 15 years of first opening an FHSA, the account must be closed, or funds transferred into an RRSP or RRIF.
• Transfers: Can transfer funds from an FHSA to another FHSA, RRSP or a RRIF on a tax-free basis. Also, individuals can transfer an RRSP to an FHSA on a tax-free basis, subject to FHSA contribution limits.
• Beneficiaries: Can name a spouse or common-law partner as successor account holder or a non-spouse as a beneficiary.

How does an FHSA work?

Thanks to the FHSA, Canadians have another powerful tool to help them get closer to their dream of home ownership. An FHSA combines aspects of the TFSA and RRSP in many ways. Your contributions to an FHSA are tax deductible and you can hold Guaranteed Investment Certificates (GICs), mutual funds, exchanged-traded funds (ETFs) and more in your FHSA account. Also, when the money is withdrawn for the purpose of buying a home, you will not be taxed on the withdrawal or any of the tax-sheltered investment growth. Therefore, an FHSA provides you with an easy and effective way to save for your down payment.  

Who’s eligible for an FHSA?

An FHSA is available to any Canadian resident 18 years of age or older who has not lived in, as a principal place of residence, a home owned jointly or otherwise by themselves or their spouse or common-law partner, in the calendar year of opening an account or in any of the previous four calendar years. It is important to understand that an FHSA is not accessible forever. The account can remain open for 15 years or until the end of the year you turn 71, whichever event happens first.

Try our new FHSA calculator to see how an FHSA account can help you save for your first home.