FHSA – Tax-Free First Home Savings Account

[Translate to English:] CELIAPP : accéder à une première propriété

The FHSA is a tax plan that allows you to save toward the purchase of a first home. Generally, it combines the advantages of an Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA).

  • Like an RRSP, the contributions are tax-deductible, so you can benefit from tax reductions
  • Like a TFSA, the funds grow tax-free in investments of your choice
  • Like a TFSA, the amounts withdrawn to purchase a first qualifying home are not taxable
Insight

Did you know?

The Home Buyers’ Plan (HBP) allows you to withdraw money from your RRSP to buy your first home.

End of the insight

Who is offering it and when?

The same institutions that offer the TFSA, including banks, credit unions, trust companies, some life insurance companies and investment firms.

This plan is available since April 1, 2023.

Eligibility requirements

Qualifying homes

“Qualifying homes” include single-family homes, semi-detached homes, townhouses, mobile homes, apartments (condominiums) in duplexes, triplexes or fourplexes, or apartment buildings.

Who can open and contribute to an FHSA

The rules are different when and after you open an FSHA.

  • When you open an FHSA
    To be eligible to open an FHSA:
    • You must be a Canadian resident;
    • You must be between the ages of 18 and 71;
    • You must not have lived in a “qualifying home” that you or your spouse or common-law partner, if applicable, owned or jointly owned in the year you plan to open an FHSA or at any time in the preceding four years.
  • After the FHSA is opened
    The concept of spouse or common-law partner only matters when opening an FHSA. Once the FHSA is opened, whether or not you have a spouse or common-law partner will not affect your right to contribute to and use the money saved in the FHSA.

Contributions

Contribution limit

You can contribute up to $8,000 per year to an FHSA ($40,000 over your lifetime).

For a couple, each spouse or common-law partner can contribute up to $8,000 per year, for a total of $16,000 (up to a lifetime contribution limit of $80,000). If you contribute $8,000 to the FHSA each year, you will reach your lifetime limit in five years.

The contribution limit is fixed. The amount is not indexed.

Unused contribution room

You can carry forward up to $8,000 of unused contribution room to the following year. Therefore, by not using up all $8,000 in contribution room each year, you can make contributions for a period longer than 5 years, although you cannot contribute for more than 15 years.

Tax deductible contributions

FHSA contributions are tax-deductible (as in the case of an RRSP).
Important: you can wait one or more years to deduct your FHSA contribution from your income. For example, you can take the tax deduction in a year when your income is higher in the hopes of benefitting from a larger tax reduction. See example.

For contributions to be tax-deductible, they must be made on or before December 31 of a given year. Unlike RRSPs, you are not given an additional 60 days after the end of that year to make contributions.

Example of maximum amounts that can be accumulated in an FHSA

The following tables show the amounts you can accumulate in an FHSA. If you do not intend to reinvest the tax reductions, see the third column. If you are planning to reinvest the tax reductions, see the last column.

Amounts accumulated in a TFSA assuming a 5% annual rate of return

Year

Contributions to the FHSA

Amounts accumulated in the FHSA

Tax reductions

Tax reductions accumulated in the TFSA

Total accumulated tax-free amounts

Year 1

$8,000

$8,400

$2,122

$2,175

$10,575

Year 2

$8,000

$17,220

$2,122

$4,458

$21,678

Year 3

$8,000

$26,481

$2,122

$6,856

$33,337

Year 4

$8,000

$36,205

$2,122

$9,374

$45,579

Year 5

$8,000

$46,415

$2,122

$12,017

$58,433

Year 6

 

$48,736

 

$12,618

$61,354

Year 7

 

$51,173

 

$13,249

$64,422

Year 8

 

$53,732

 

$13,911

$67,643

Year 9

 

$56,418

 

$14,607

$71,025

Year 10

 

$59,239

 

$15,337

$74,576

Year 11

 

$62,201

 

$16,104

$78,305

Year 12

 

$65,311

 

$16,909

$82,220

Year 13

 

$68,577

 

$17,755

$86,331

Year 14

 

$72,005

 

$18,643

$90,648

Year 15

 

$75,606

 

$19,575

$95,180
Amounts accumulated in a FHSA assuming a 5% annual rate of return and waiting a few years to claim the tax reduction to obtain a larger tax reduction

Year

Contributions to the FHSA

Amounts accumulated in the FHSA

Tax reductions

Tax reductions accumulated in the TFSA

Total accumulated tax-free amounts

Year 1

$8,000

$8,400

 

 

$8,400

Year 2

$8,000

$17,220

 

 

$17,220

Year 3

$8,000

$26,481

 

 

$26,481

Year 4

$8,000

$36,205

 

  

$36,205

Year 5

$8,000

$46,415

 

 

$46,415

Year 6

 

$48,736

$2,890

$2,961

$51,697

Year 7

 

$51,173

$2,890

$6,070

$57,243

Year 8

 

$53,732

$2,890

$9,334

$63,066

Year 9

 

$56,418

$2,890

$12,762

$69,180

Year 10

 

$59,239

$2,890

$16,361

$75,600

Year 11

 

$62,201

 

$17,179

$79,380

Year 12

 

$65,311

 

$18,038

$83,349

Year 13

 

$68,577

 

$18,940

$87,517

Year 14

 

$72,005

 

$19,887

$91,892

Year 15

 

$75,606

 

$20,881

 $96,487

Table assumptions and limitations:

  • You receive the tax reductions six months after you contribute.
  • Your marginal tax rate is initially 26.53%.
  • When deducting your FHSA contribution a few years later, your marginal tax rate is 36.12%.
  • For more accurate results, the effective marginal tax rate should be used (i.e., the tax rate that takes into account tax programs).

Qualified investments

The same investments as for a TFSA, including guaranteed investment certificates (GICs), shares, bonds, mutual funds, exchange-traded funds (ETFs), etc.

Contributing to an FHSA by transferring funds from an RRSP

You can contribute to the FHSA by transferring funds from an RRSP. The contribution limits ($8,000 annual and $40,000 lifetime) apply.

However, since you received a tax reduction by contributing to your RRSP, you won’t receive additional tax reductions when the amounts are transferred to the FHSA.

Nevertheless, the amounts grow tax-free and will be non-taxable when they are withdrawn. Transferring money from an RRSP to an FHSA does not result in a corresponding increase in your RRSP contribution room.

Over-contributions

If you exceed your maximum FHSA contribution limit, a 1% tax on the excess amount will be applied for each month that you are in an over-contribution situation.

Contributing to your spouse’s or common-law partner’s FHSA

You cannot contribute to your spouse’s or common-law partner’s FHSA. You may, however, gift the funds to your spouse or common-law partner and have them contribute them to their FHSA.

Multiple FHSAs

You can have more than one FHSA. The contribution limits apply to the total amount held in all the institutions where you hold an FHSA.

For example, if you have $8,000 in unused contribution room for a particular year, you will be able to contribute $8,000 altogether, not $8,000 per institution.

Borrowing to contribute

You can borrow to contribute. However, interest on the loan is not tax-deductible.

Investment income

Accumulation of funds

Amounts invested in an FHSA accumulate tax-free.

Qualifying withdrawals

Qualifying withdrawals to buy a home

For a withdrawal to be a qualifying (i.e., non-taxable) withdrawal, you must:

  1. Have a written agreement to buy or build a qualifying home prior to October 1 of the year following the year of withdrawal.
  2. Have acquired the qualifying home 30 days or less before making the withdrawal.
  3. Intend to occupy the qualifying home as your principal residence within one year after buying or building it. A secondary residence that you intend to occupy only occasionally would therefore not be a qualifying home.

Tax-free qualifying withdrawals

Qualifying withdrawals from an FHSA to buy a home (including investment income) are not taxable, as in the case of a TFSA.

To withdraw tax-free amounts, you must not have lived in a “qualifying home” that you owned or jointly owned in the year of the withdrawal or in the preceding four years.

Note: at the time of withdrawal, the concept of spouse or common-law partner does not apply, which means that, at the time of withdrawal, even if your spouse or common-law partner lives in a qualifying home he owns, you can withdraw money to buy a home that you intend to live in.

Example: You move in with a spouse or common-law partner after you open your FHSA

You are single and live in an apartment. You open an FHSA and start contributing to it. The following year, you meet someone who lives in a home he owns and you move in with them. You can still continue to contribute to your FHSA with all the benefits that come with it (deducting the contributions and growing the money tax-free). You could use your FHSA to become joint owner of your spouse’s or common-law partner’s home. Or you could choose to move into a new home, instead. Your spouse or common-law partner does not have the right to contribute to the FHSA, because they live in a home they own.

Warning

If you make non-qualifying withdrawals, the withdrawn amounts will be taxable.

End of the warning

End of the plan

First withdrawal from the FHSA

December 31

FHSA closed:
December 31 of the
following year

Closing the plan

The FHSA is closed on December 31 of the year following the first qualifying withdrawal.

Once the FHSA is closed, you will not be able to open another one ever again. You will no longer be eligible to use the FHSA.

Unlike the Home Buyers’ Plan (HBP), there is no minimum period of time that the money has to be held inside an FHSA. You could therefore contribute to an FHSA on January 1 and withdraw the funds a few days later. Also, unlike the HBP, with an FHSA you withdraw the money tax-free to buy a qualifying property and never have to put it back into the plan. Indeed, the money you withdraw from the FHSA cannot be put back into the plan.

Closing an FHSA without buying a property

If you don’t buy a qualifying home, you may transfer the money accumulated in an FHSA to an RRSP or RIFF without using your RRSP or RRIF contribution room. This means that even if you no longer have RRSP contribution room, you can transfer money from your FHSA to an RRSP or RRIF whenever you want.

If you don’t buy a qualifying home and you don’t transfer the money to an RRPS or RRIF, all the amounts become taxable when the FHSA is closed.

When the FHSA ends

The FHSA ends on the earliest of:

  • December 31 of the 15th anniversary of opening your first FHSA.
  • December 31 of the year the FHSA holder turns 71.
  • December 31 of the year following your first qualifying withdrawal from an FHSA. You may contribute in the year of withdrawal, provided you do so BEFORE the withdrawal. If you contribute after the withdrawal, your contributions will not be tax-deductible; however, you will be able to transfer them to your RRSP without using your RRSP contribution room. This transfer is not eligible for a tax reduction.
  • Upon the death of the holder of the FHSA, the amounts become taxable on the tax return of the beneficiary of the plan. There is an exception if the beneficiary is the spouse or common-law partner. If that is the case, two scenarios are possible:
    • The spouse or common-law partner qualifies for the FHSA. The spouse or common-law partner may transfer the amounts to their own FHSA tax-free without having to use their contribution room.
    • The spouse or common-law partner does not qualify for the FHSA. The spouse or common-law partner may transfer the amounts in the deceased’s FHSA to their own RRSP tax-free without having to use their RRSP contribution room.

Home Buyers’ Plan

You can use the HBP at the same time as the FHSA. The two plans are independent.

Documentation and tools

Tips for better investments

Mortgages

HBP – Home Buyers’ Plan

TFSA – Tax-Free Savings Account