FHSAs in 10 questions

1 - What is an FHSA?

Announced in the 2022 federal budget, an FHSA is a new type of registered savings plan. It aims to help future buyers of a qualifying home save, thereby facilitating access to homeownership.

An FHSA, in a nutshell, allows you to:

• Deduct the contributions from your annual taxable income, as with a Registered Retirement Savings Plan (RRSP)
• Generate tax-free returns, as with a Tax-Free Savings Account (TFSA) and RRSP
• Use the funds you accumulate to buy a qualifying home in Canada

Also, unlike withdrawals made from an RRSP under the Home Buyers’ Plan (HBP), funds withdrawn from an FHSA do not have to be paid back.

2 - Who can open an FHSA?

To qualify for an FHSA, you must:

• Be a resident of Canada and have a social insurance number
• Be at least 18
• Be 71 or younger as of December 31 of the year you open your FHSA
• Not have lived in a qualifying home in Canada that you and/or your spouse owned at any time in the calendar year that the account is opened or at any time in the preceding four calendar years

3 - Is there anything else to know regarding eligibility?

Yes. At the time of withdrawal to purchase a qualifying home, the account holder must confirm that they still qualify for their FHSA. Please note that this only affects the FHSA account holder and that, once a proof of or agreement to purchase (i.e. an offer) has been submitted, they may withdraw the funds tax free, even if their spouse is a homeowner.

4 - What is the contribution room and how does it work?

The maximum contribution room for an FHSA is $8,000 per year, per eligible person. You can contribute a lifetime limit of $40,000 over a maximum of 15 years following the opening of your FHSA. Your contribution room accumulates annually as of the year of opening. You will therefore need at least five years to reach the limit of $40,000.

Once your FHSA is open, you can also carry forward any unused contribution room. However, the maximum unused amount you can contribute each year is limited to $8,000. Your maximum annual contribution could therefore increase to $16,000 in a year, that is, $8,000 of contribution room for the current year plus the maximum of $8,000 of unused contributions carried over from preceding years.

5 - How do deductions for FHSA annual contributions work?

Unlike RRSPs, which allow contributions up to 60 days after the end of the fiscal year, the deadline to contribute to your FHSA is December 31 of each year.

FHSA deductions can be carried forward indefinitely, even after the account has been closed. It could therefore be advantageous to carry your deductions forward if you foresee your income increasing in the coming years.

6 - What should I know about the FHSA maximum participation period?

You can contribute to an FHSA until December 31, 15 years after opening your account or until you turn 71 years of age.

After being used to purchase a property, your FHSA will remain open until December 31 of the year following your first qualifying withdrawal (as defined in the regulations). For example, if you withdraw part of your FHSA in 2032, it must be closed by the end of 2033 at the latest.

If you do not use your FHSA to buy a house during the participation period, you can:

• Transfer your savings to a Registered Retirement Savings Plan (RRSP), without any impact on your RRSP contribution room
• Transfer your savings to a Registered Retirement Income Fund (RRIF)
• Withdraw the funds yourself: in this case, your contributions and the returns generated in your FHSA will be 100% taxable

7 - Are withdrawals made to purchase a property taxable?

No, withdrawals made from an FHSA in order to purchase a qualifying home (as defined in the regulations) are not taxable. This includes, if applicable, the returns generated through an FHSA, which could allow you to increase your down payment.

8 - Is an RRSP (HBP) still beneficial for purchasing a first home?

Absolutely! Using your RRSP to take advantage of the Home Buyers’ Plan (HBP) can still be beneficial.

Remember that the HBP allows you to use the funds in your RRSP to buy a first home. The withdrawal limit is $60,000 and you then have 15 years to pay the funds you withdrew back to your RRSP.

Here are two examples of situations where an RRSP can fit into your homebuying strategy:

• Buying a home within two or three years: If you require a significant down payment to purchase your home, the HBP (from your RRSP) could be more beneficial because of its higher annual contribution limit versus an FHSA’s (which is $8,000 per year). However, if your down payment is more modest, the contribution room provided by your FHSA should likely suffice.
• Combining your RRSP and FHSA assets: Once you reach your FHSA’s contribution limit, it could be beneficial to contribute to your RRSP to eventually combine the two plans. In this way, you would have access to more capital for your down payment, as you can use the market value of your FHSA and the contributions invested in your RRSP for the HBP.

Note: You can transfer funds from your RRSP to your FHSA. However, in this case, you cannot deduct these funds from your income a second time and you will not recover the contribution room you had already used toward your RRSP.

9 - Can a Tax-Free Savings Account (TFSA) also be advantageous for purchasing a first home?

A TFSA is also an interesting savings vehicle for several reasons. Here are a few:

• Since an FHSA has a maximum contribution period of 15 years, which begins when your first FHSA is opened, it could be beneficial to start saving in a TFSA first. You could then transfer these savings and the returns they have generated to a new FHSA, to take full advantage of your contribution room. Also, you can reuse your TFSA contribution room the year following the withdrawal.
• A TFSA offers greater flexibility when it comes to withdrawals. You can therefore use your TFSA contributions to save for the purchase of a property, but also for other important plans or to build a contingency fund.

Comparative summary of the FHSA, RRSP and TFSA

10 - If my spouse already owns a qualifying home, can I still open an FHSA?

If you live with your spouse in a qualifying home that he or she owns, you cannot open an FHSA.

If you do not live with your spouse and you meet all FHSA eligibility criteria, including not having lived in a qualifying home that you owned in the current year or in the past four years, you may open an FHSA.

Note: Whether or not you live with your spouse, if you opened an FHSA before your relationship with him or her began, you can keep contributing and use it to purchase your first property.