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 Amounts that are withdrawn for other purposes are taxable.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 Also, when the money is withdrawn for the purpose of buying a home, you will not be taxed on the withdrawal or any of the tax-sheltered investment growth.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.

How to open an FHSA

You can open an FHSA by speaking to one of our BMO investment professionals¹ at your local branch or calling the BMO Investment Centre. You can open and hold more than one FHSA account, but you cannot exceed your annual and lifetime contribution limit.

Understanding FHSA Contributions

You can contribute up to $8,000 annually and there’s a lifetime contribution limit of $40,000. Unused annual contribution room can be carried forward to the next year up to $8,000 ($16,000 total in any given year). For example, an individual contributing $5,000 to an FHSA in 2023 would be allowed to contribute $11,000 in 2024 (i.e., $8,000 plus the remaining $3,000 from 2023). In addition, you can deduct your FHSA contributions from your income tax just like in an RRSP.  

An FHSA can hold the same qualified investments that are available for a TFSA that you can purchase with your contributions. This means you can hold investments such as GICs, mutual funds, ETFs and more in your FHSA account.

Understanding FHSA withdrawals

When you’re ready to purchase your home, you’ll need to make a withdrawal from your FHSA. Under an FHSA, you can make a qualifying withdrawal of any amount used towards the purchase of a home. However, purchases can’t be less than 10% of the cost of a qualifying home. Any gains that you have accumulated in your FHSA can be withdrawn tax-free towards the purchase of your first home.

If you decide to withdraw funds for any reason other than purchasing your first home, this would be considered a non-qualifying withdrawal and would be included as income, which becomes taxable. Non-qualifying withdrawals will not reinstate your annual or lifetime contribution limit.

What happens if you’ve decided that you’re no longer interested in buying a home? Well, instead of making a taxable withdrawal from your FHSA, any leftover funds not used in a home purchase can be transferred tax-free into an RRSP or RRIF.

Understanding FHSA transfers

An FHSA allows for flexible transfers, as you can move your funds from an FHSA to another FHSA, RRSP or a RRIF on a tax-free basis. Keep in mind that these transfers would not be tax deductible, reinstate your FHSA contribution room or reduce your available RRSP contribution room. Funds transferred into an RRSP or RRIF would be subject to the normal rules and limitations of those account types.

Funds can also be transferred from your RRSP to your FHSA but would not be tax deductible and would not reinstate your RRSP contribution room. Transfers into from your RRSP into your FHSA would be subject to your FHSA annual and lifetime contribution limits.