The First Home Savings Account (FHSA) is a registered savings plan introduced by the federal government in 2022. An FHSA is designed to help you save for your first home tax-free and help you reach your vision of owning a home faster!
What is a First Home Savings Account (FHSA)?
An FHSA combines some of the features of an RRSP and TFSA. Contributions will generally be tax-deductible, and when a qualifying withdrawal is made, the amount withdrawn is not taxable.
How does an FHSA work?
- Annual contributions are capped at $8,000 up to a $40,000 lifetime contribution limit.
- A maximum of $8,000 unused contribution room can continue the following year.
- The account can stay open for a maximum of 15 years or until the end of the year you turn 71
Am I eligible for an FHSA?
To open a First Home Savings Account, you must be:
- A Canadian resident
- 18 years or older
- A first-time home buyer
How is the FHSA different from the Home Buyers’ Plan?
With the current Home Buyers’ Plan, Canadians can withdraw up to $35,000 from their RRSP, subject to eligibility and conditions. The funds must be paid to the RRSP over 15 years.
With an FHSA, eligible withdrawals do not need to be paid back.
What is the difference between the First Home Savings Account, Registered Retirement Savings Plan, and theTax-Free Savings Account?
| FHSA | RRSP | TFSA | |
| How does it help me buy a house? | Invest your eligible contributions and use them for purchasing a qualifying home. | Withdraw from your RRSP and use the amount towards your qualifying home purchase under the Home Buyers’ Plan. You can borrow up to $35,000 from your existing RRSP, but the borrowed funds must be paid back within 15 years | Invest your eligible contributions and use them for a home purchase (or anything else you want). Amounts withdrawn from a TFSA create additional TFSA contribution room beginning in the year following withdrawal. |
| What are the contribution rules? | $8,000 is the annual contribution limit. Carry-forward rules apply a $40,000 lifetime contribution limit during the Maximum Participation Period. | The lesser of 18% of your previous year’s income and the current fixed contribution limit $30,780 for 2023. You can carry forward any unused contribution room from previous years. No lifetime contribution limit. | $6,500 is the annual contribution limit for 2023. You can carry forward unused contribution room from the year you turned 18 and was a Canadian resident for tax purposes. No lifetime contribution limit. |
| Who’s eligible to open an account? | Canadian residents 18 years or older but not more than 71 years on December 31 of the year you open an FHSA, who have a valid Social Insurance Number (SIN) and are considered a first-time home buyer | Canadian residents (for tax purposes) up to the end of the year you turn 71, who have earned income and filed an income tax and benefit return. Some financial institutions may require customers to be the age of majority. | Canadian residents 18 years or older who have a valid SIN. There is no upper age limit to hold a TFSA, unlike an FHSA or an RRSP. |
| Will I get a tax deduction on eligible contributions? | Eligible contributions are tax-deductible (except on transfers into your FHSA from your RRSP, although these transfers do use up FHSA contribution room). | Eligible contributions are tax-deductible (except on transfers into your RRSP from your FHSA). | No. Contributions are not tax-deductible. |
| Key Advantages | Funds in the account grow tax-free, which could mean more money for a qualifying home purchase. You may also be able to transfer funds tax-free from your FHSA to an RRSP or RRIF in your name | Funds can be used towards the purchase of a qualifying home under the HBP. Investments can grow within the plan tax-deferred. | Funds in the account grow tax-free and you can use the value of the account for anything you like, including towards the purchase of a home. |
| Limitations | An FHSA can only be held until December 31st of the year in which the earliest of the following occurs: the 15th anniversary of opening your first FHSA, the year you turn 71 or the year following your first qualifying withdrawal.
Non-qualifying withdrawals (not made to purchase a qualifying home) are taxable income. |
Under the HBP, any RRSP withdrawal used to buy or build a qualifying home must be returned to your RRSP within 15 years and repayment begins in the second year after the year when you first withdrew funds. If you fail to repay the required amount within the required time frame, that amount will be considered as taxable income in that year. | Contributions made to a TFSA are not tax-deductible. |
Every dollar counts when purchasing a first home. This product allows you to save and withdraw tax-free, which can help in the long run.
Interested in setting up a new FHSA? We’ve done the work for you!
Check out a few banks offering you a Bonus to set up your new FHSA!
- TD currently has a promotion where if you open an FHSA before Oct 31, 2023, and invest $3,000 you could get $100.
- At Scotiabank earn an interest rate of 5.00% on new FHSA deposits with the Savings Accelerator Account until Jan 31, 2023.
- At BMO, the FHSA will be available this November. By signing up today you can take advantage of their special 5.03% Short-Term Investment Certificate rate.
- At Desjardins, open a FHSA and get the introductory promotional rate of 5.00% for a limited time.
If you are curious about the home buying process as a first time home buyer, you can CLICK HERE to book a call to chat about what is required of you on the mortgage half! It is never too early to start preparing for one of the biggest purchases of your life.
Trish & The Primex Team