First Home Savings Account (FHSA)

First Home Savings Account Launched on April 1, 2023

First home savings account (FHSA) is a registered plan allowing people who are prospective first-time home buyers, to save for their first home tax-free (up to certain limits). Individuals are able to open an FHSA starting April 1, 2023.

Canadians can now get some assistance when it comes to buying a home with help from the federal government’s Tax-Free First Home Savings Account (FHSA). The program was announced in the 2022 federal budget. It is an attempt to help hopeful first-time home buyers enter the pricey Canadian housing market.

FHSA Explained

The FHSA is a mix between a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA), but it’s specifically geared towards saving for a house. Contributions to this account will be tax deductible and withdrawals to buy a home will be non taxable.

Who can open an FHSA

To open an FHSA, one must be a qualifying individual, meeting the following requirements at the time the account is opened:

  • 18 years of age or older
  • a resident of Canada
  • a first-time home buyer

For the purpose of opening an FHSA, you will be considered to be a first-time home buyer if, at any time in the calendar year before the account is opened or at any time in the preceding four calendar years, you did not live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that either:

  • you owned or jointly owned
  • your spouse or common law partner (at the time the account is opened) owned or jointly owned

If you end up becoming a non-resident of Canada after you’ve already opened a FHSA, you can participate normally in contributions; however, you cannot make a withdrawal to buy or build a home while you’re not a Canadian resident.

There will be an $8,000 annual contribution limit, but unused portions of a yearly contribution can be carried forward into the next year. The lifetime FHSA limit is $40,000.

While this is not a very big amount given the current home prices, but regardless it is a great saving option and is sure to help potential home buyers, even if just in a small way.

The account can remain open until the 15th anniversary of opening it, until the person turns 71, or the year following a person’s first qualifying withdrawal of their FHSA, whichever comes first.

Investments & Withdrawals from FHSA

Canadians can have the same kind of investments in their FHSA as they do in a TFSA.

However, when it comes time to withdrawing funds from the FHSA, there are a few requirements:

  • the property the funds are being used to purchase has to be in Canada
  • the taxpayer has to intend on living in that house as their principal residence
  • they need to have a written agreement to buy or build a qualifying home before Oct. 1 of the year following the withdrawal

It appears that a person who has funds in both a FHSA and the Home Buyers Plan will not be permitted to make withdrawals from both accounts for the same home purchase.

You can pull money out tax-free if you buy a home, but if you don’t that money goes into your RRSP.

Kindly consult with your FHSA issuer or Tax consultant before making any transactions.

What is the Home Buyers Plan (HBP)?

Home Buyers Plan is a program that allows first time home buyer to borrow up to $35,000 from their “Self-directed Registered Retirement Savings Plan (SDRSP)”.

If you’re purchasing with someone who is also a first time homebuyer, you can both access $35,000 from your RRSP for a combined total of $70,000.  You must be a Canadian resident who has not used this plan before.

The loan is not taxable as long as the funds are repaid into the RRSP (registered retirement savings plan) over a 15 year period. The money cannot be withdrawn until 90 days after the RRSP contribution. After 90 days one can use the Home Buyers’ plan to withdraw $35,000 without penalty. This way you will receive a tax rebate.

How to Open Your First Home Savings Account

Any financial institution that is able to issue RRSPs and TFSAs would be able to issue FHSAs.

You can open an FHSA through an FHSA issuer  such as a bank, credit union, or a trust or insurance company.

Types of FHSAs

There are three types of FHSAs that can be offered:

  • a depositary FHSA
    • an account (with a financial institution) that holds money, term deposits, or guaranteed investment certificates (GICs)
  • a trusteed FHSA
    • a trust (with a trust company as trustee) that holds qualified investments such as money, term deposits, GICs, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange
  • an insured FHSA
    • an annuity contract (with a licensed annuity provider)

You can also set up a self-directed FHSA if you prefer to build and manage your investment portfolio. For more information, contact an FHSA issuer.

Consult with an FHSA issuer in order to avoid any unintended tax consequences. This is important as you can have more than one FHSA but the total amount you can contribute to all of your FHSAs and transfer from your RRSPs to all your FHSAs in a calendar year cannot be more than your FHSA participation room  for that year.

Find out more about FHSA on the CRA website

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