What’s the FHSA? And is it the right account for me?

What are the eligibility requirements for the FHSA? 

To open a tax-free First Home Savings Account (FHSA), you must meet the following eligibility criteria: 

• You must be a resident of Canada. 
• You must be between 18 and 71 years old*
• You and your spouse must not own a home in Canada. This means you must be a first-time buyer. 
  

Am I eligible for the FHSA if my spouse is a homeowner but I’m not? 

You are not eligible for the FHSA if your spouse’s property has been your principal place of residence in the current year or in the last four years. 

However, if you separate and don’t live in that residence for at least four years and don’t purchase another property yourself, you’re then eligible to open an FHSA. 

However, if you no longer have a spouse who’s an owner and you have not owned your main place of residence yourself for more than 4 years, you’re then eligible to open an FHSA.

Good to know: We’re using “spouse” here as it is defined for tax purposes. Talk to your accountant or tax professional to see what your status is. 

How does the FHSA work? And how much can I contribute? 

The FHSA allows you to make tax-deductible contributions of up to $8,000 per year, up to a lifetime maximum of $40,000. Your contribution room starts to accumulate as soon as you open your first account. You can carry forward your unused FHSA contribution room, up to a maximum of $8,000, to use in the following year.

For example, if you contributed only $5,000 in one year, you’d be entitled to carry forward your remaining $3,000 contribution ($8,000 – $5,000 = $3,000) to the next year, in addition to your new annual entitlement of $8,000. This means you’ll be entitled to a total tax-deductible contribution of $11,000 ($8,000 + $3,000 = $11,000) in the following year. 

Can I have multiple FHSA accounts? 

Yes, it’s possible to hold multiple FHSA accounts at different financial institutions. You can open a FHSA with National Bank and own another account with National Bank Direct Brokerage. However, your combined annual ($8,000) and lifetime ($40,000) contribution limits remain the same.

How long do I have to buy my first property with the FHSA? 

You’re allowed to hold an FHSA for 15 years or until age 71. This means that you have until December 31 of the year in which you either reach the 15th anniversary of your account opening or turn 70 to use your FHSA to purchase your first property. 

Your FHSA must be closed by December 31 of the year following the date of your first qualifying withdrawal.  

What do I do with unused money in my FHSA? 

If you still have money in your FHSA at the time of closing, several options are open to you: 

1. Make a tax-free direct transfer to an RRSP or RRIF without affecting your RRSP contribution room.     
2. Withdraw the money, which is subject to tax withholding, and deposit it into a daily chequing account. You could also reinvest it in a TFSA, for example. 

FHSA vs. RRSP: What’s the difference?        

Are you wondering what the difference is between the Home Buyers’ Plan (HBP) and a FHSA? Here’s how an FHSA withdrawal stacks up against an HBP withdrawal from an RRSP: 

• Repayment of the money withdrawn: Money withdrawn from an FHSA never has to be repaid. An HBP withdrawal from an RRSP, on the other hand, must be repaid over a period of 15 years, beginning in the second year following the withdrawal. 
• Minimum holding period: There’s no minimum period of time that money must be held in an FHSA before contributions can be withdrawn. In the case of the HBP, funds must be deposited for a minimum of 90 days before they can be withdrawn. 
• Maximum annual contribution: The maximum annual contribution for an FHSA is $8,000, and the lifetime limit is $40,000. For an RRSP, it’s the lesser of 18% of your income or the annual limit set by the government ($30,780 for 2023). Check your latest notice of assessment from the Canada Revenue Agency (CRA) to find out what your RRSP contribution room is. 
• Maximum withdrawal amount: Unlike the HBP, where the most you can withdraw from an RRSP is $35,000, the FHSA is not subject to a maximum withdrawal amount. 
• Contribution year: Only contributions made during the calendar year count towards the FHSA. Amounts contributed to the RRSP during the first 60 days of a calendar year can be claimed in the previous tax year. 

Can I transfer money from an RRSP to an FHSA? 

The good news is that you can transfer money directly to an FHSA from your RRSP without any tax consequences. However, the amount transferred won’t be tax deductible a second time and will count against your annual FHSA contribution room. 

Can I combine the FHSA and HBP? 

Yes, you can combine the FHSA with the HBP. In addition to making a withdrawal from your FHSA for the purchase or construction of a first home, you can also draw up to $35,000 from your RRSP under the HBP program. Are you a couple? You can each combine your respective FHSA accounts with an HBP withdrawal to maximize your down payment. 

FHSA vs. TFSA: What’s the difference?       

Although their names sound similar, FHSAs and TFSAs are somewhat different.  

• Unlike FHSAs and RRSPs, money contributed to a TFSA is not tax deductible. 
• When you make a withdrawal from your TFSA, regardless of the reason, the amount is tax-free and will not count towards your annual income. 
• As with the FHSA, the money you earn on investments in your TFSA are sheltered from tax. 

Can I transfer money from a TFSA directly to an FHSA? 

No, you cannot take money out of a TFSA and transfer it to an FHSA. The money must be withdrawn from your TFSA and deposited into a bank account and then contributed to your FHSA. You also need to ensure that your investments are available before making the transfer. 

For example, if the money in your TFSA is invested in stocks, you will need to sell the stocks first to access your cash and then deposit the amount into a bank account before transferring it to an FHSA. 

Is the FHSA suitable for investing? 

You can hold the same types of investments in an FHSA as in an RRSP or TFSA. These include: 

• Guaranteed investment certificates (GICs)
• Investment funds (known as mutual funds)
• Stocks and publicly traded securities
• Government and corporate bonds

An FHSA can be an attractive option for investing because the returns on your investments in this type of account are tax-sheltered and don’t count towards your income. 

Good to know: If you’re investing on your own, be aware that the rules regarding prohibited or ineligible investments that apply to other registered plans also apply to the FHSA, with the same potential tax consequences. 

For more information on the different types of investments, consult our guide. 

Did you find this information helpful? If you think an FHSA is a good option for you, make the most of it, and open one sooner rather than later!