What is an FHSA?
An FHSA is a tax-free savings account designed to help future homeowners save for the purchase of a qualifying first home in Canada.
Combining the advantages of an RRSP and a TFSA, the FHSA gives you a deduction that reduces your annual taxable income and allows you to generate tax-free returns. You can then use the accumulated funds to finance the purchase of a first home without having to pay taxes on withdrawals, and without having to repay the amounts withdrawn from the FHSA.
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Eligibility criteria
• Must be a Canadian resident.
• Must be of legal age in your province of residence.
• Must be under 71 years of age as of December 31 of the current year.
• Must not have lived in a qualifying home in Canada that you or your spouse owned during the part of the calendar year preceding the opening of the FHSA or during the preceding four calendar years.
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Contribution deadline
The FHSA contribution deadline is December 31 of each year. Unlike with the RRSP, you cannot contribute to your FHSA until the following March 1.
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Contribution room
You can contribute up to $8,000 per year to your FHSA, for a maximum of $40,000 during your lifetime.
You can also carry forward up to $8,000 of unused contribution room from one year to the next, for a maximum annual contribution of $16,000.
Key advantages of the FHSA
- As with an RRSP, your FHSA contributions reduce your annual taxable income.
- Your savings and returns generated in the FHSA are tax free upon withdrawal.
- Unlike RRSP withdrawals under the Home Buyers’ Plan (HBP), sums withdrawn from an FHSA for the purchase of a first home do not have to be repaid.
- You can carry forward up to $8,000 of unused contribution room, for a maximum annual contribution of $16,000.
- You can transfer funds from your FHSA to your RRSP or your RRIF if you are not using them.
Did you know?
To purchase your first home, you can combine savings with returns from your TFSA and your FHSA, and up to $35,000 from your RRSP through the Home Buyers’ Plan (HBP). An advisor can work with you to determine the best strategy for you.
| FHSA | RRSP | TFSA | |
|---|---|---|---|
| Main objective | Buying a first home | Savings and retirement | Miscellaneous savings |
| Secondary objective | Savings and retirement | HBP | Savings and retirement |
| Minimum age | 18 | None | 18 |
| Maximum age | 71 | 71 | None |
| Annual contribution limit | $8,000 per year $40,000 lifetime maximum |
18% of your previous year’s income or the current year’s annual limit | $6,500 in 2023 |
| Annual contribution period | January 1 to December 31 | March 2, 2023 to February 29, 2024 | January 1 to December 31 |
| Maximum participation period | Close on December 31 of the year in which the earliest of the following events occur: • The fifteenth anniversary of your first FHSA • The year following your first eligible withdrawal • Your 71st birthday |
Up to age 71 | None |
| Plan conversion | Can be transferred to an RRIF or RRSP with no implications | Possible with an RRIF, no later than age 71 | No |
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Frequently asked questions
When will the FHSA be available at iA Financial Group?
Anyone eligible for the FHSA will be able to open an account as of November 13, 2023. It will thus be possible to use contribution room for the 2023 tax year.
What is the maximum participation period for the FHSA?
You can keep your FHSA until December 31 of the 15th year after it was opened or until December 31 of the year you turn 71.
If you use the funds in your FHSA to purchase a home, it will remain open until December 31 of the year following the first eligible withdrawal. For example, if you make a withdrawal in 2031, your FHSA must be closed by the end of 2032.
If you don’t use the funds in your FHSA during the participation period, you can usually transfer them to your RRIF or RRSP without affecting your unused deductions. You can also withdraw the remaining funds, which will then be taxed according to your tax bracket.
Can I have more than one FHSA?
Yes, you can have more than one FHSA. However, you must ensure that your total contributions do not exceed the $40,000 lifetime limit or the $8,000 in annual contributions to which you are entitled.
Please note also that your participation period begins when you conclude your first contract. You will therefore have to close all your FHSA accounts once the participation period has elapsed.
Can I contribute to my child’s, a family member’s or a friend’s FHSA?
You cannot contribute directly to your child’s, a family member’s or a friend’s FHSA since only the FHSA holder can contribute.
However, you can make a donation to your child, a family member or a friend, who can then use it to contribute to their own FHSA.
Am I penalized if I exceed the maximum contribution allowed?
Yes. If you exceed your contribution limit, you will have to pay a penalty of 1% of the excess amount for each month there is a surplus in the account.
Please note that unlike RRSPs and TFSAs, you are not allowed an excess of $2,000 before you are penalized.
Once I’ve contributed, can I carry forward my tax deductions to another year?
Yes, as with an RRSP, you can carry forward unused deductions to future years.
This could be a good strategy to consider if you expect a significant increase in your income in the years to come. For example, if you finish your studies and start your career.
My spouse is already a homeowner. Can I open an FHSA?
If your spouse is a homeowner, you cannot open an FHSA as FHSA eligibility requires that neither you nor your spouse must have owned a home in Canada in the past four years, nor in the current year.
However, if you opened an FHSA before becoming the spouse of a homeowner, you can continue to contribute to your FHSA and use it to purchase your first home. Only the FHSA holder must meet the eligibility criteria in this context.
If you have any doubts, please don’t hesitate to consult an advisor to gain a full understanding of the details specific to your situation.
Can I combine my FHSA and my RRSP (under the HBP) to purchase my first home?
Yes. You can combine contributions with returns from your FHSA, and up to $35,000 from your RRSP, to purchase your first home in Canada.
You can use this approach to maximize your down payment on your first home. Talk to your advisor about the best strategy for you.
What is the difference between an FHSA and a TFSA for first-time home buyers?
The FHSA is specifically designed to help you save for the purchase of your first home, whereas the TFSA is a savings vehicle that can be used for a variety of projects, including the purchase of your first home.
Please note that first-time home buyers can combine savings from their FHSA, TFSA and RRSP under the HBP.
How do I open an FHSA?