Purchasing your first home in Canada can be both exhilarating and daunting, especially when it comes to paying the down payment. This is where the First Home Savings Account (FHSA) enters.
With tax benefits, the registered account known as FHSA aids Canadians in saving for their first property. Offering first-time homebuyers a strong approach to speed up their home savings, it combines the best aspects of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP).
In this blog, we’ll explore what the FHSA is, how it works, its benefits, eligibility, and how it compares to other savings options, helping you make a smart decision toward buying your dream home.
What Is A First Home Savings Account (FHSA)?
The First Home Savings Account (FHSA), unveiled by the Canadian government in 2023, was intended to make homeownership more realistic. It provides a tax-free means to save and invest for the purchase of your first home.
- Like RRSP donations, you can claim those contributions as a tax deduction up to $8,000 yearly.
- Your withdrawals, including investment profits, are entirely tax-free when you purchase your first house utilizing your savings.
- Over their lifetime, the contribution ceiling is $40,000. Carry forward unused yearly contribution room to the following years.
- You can also move money tax-free between your FHSA and RRSP (up to the FHSA limit).
- Unlike the TFSA or RRSP, the FHSA is specially designed for first-time home buyers and provides tax-free withdrawals as well as tax benefits paid up front.
Advantages of First Home Savings Account for First-Time Buyers
For Canadians planning to purchase their first home, the FHSA is one of the most beneficial financial tools available. Here’s why:
1. Contributions Eligible for Tax Deductions
Tax-deductible up to $8,000 per year, every donation to your FHSA lowers your taxable income and could boost your tax return.
2. Tax-Free Development
Any investment returns from stocks, bonds, or mutual funds within your FHSA are tax-free. You do not have to pay taxes on the expansion when you take money for your first house buy.
3. Combine FHSA with RRSP Home Buyers’ Plan
You may purchase your first property using your FHSA in conjunction with the RRSP Home Buyers’ Plan (HBP), which lets you take up to $35,000 tax-free from your RRSP. This mix can greatly increase your overall down payment.
4. Perfect For Planning Over The Long Run
Because contributions can stay invested for as long as 15 years, young Canadians can start saving early and watch their money grow with compound interest before buying a home.
How Much Can You Contribute to FHSA?
The FHSA allows annual contributions of up to $8,000, with a lifetime limit of $40,000.
For example:
Sarah, a 27-year-old first-time buyer, contributes $8,000 each year for five years. Over that time, she invests a total of $40,000, earns $5,000 in growth, and withdraws $45,000 tax-free to purchase her first home.
In today’s Canadian housing market, that amount can cover a significant portion of a down payment, especially for homes outside major cities like Toronto or Vancouver.
FHSA vs Other Savings Options (TFSA, RRSP)
| Feature | FHSA | TFSA | RRSP (HBP) |
| Purpose | Saving for a first home | General savings/investments | Retirement + home purchase |
| Contributions | Tax-deductible | Not deductible | Tax-deductible |
| Withdrawals for Home | Tax-free | Tax-free (no conditions) | Tax-free (repay in 15 years) |
| Contribution Limits | $8,000/year, $40,000 lifetime | $7,000/year (2024 limit) | 18% of income up to $31,560 (2024) |
| Best For | First-time home buyers | Flexible investors | Retirement savers and home buyers |
Who Is Eligible For FHSA?
To participate in and open FHSA:
- Become a resident of Canada.
- You must be at least 18.
- Become a first-time homebuyer, therefore you (or your spouse/common-law partner) have not possessed a home you lived in during the last four years.
Most Canadian financial institutions, including banks, credit unions, and online brokerages, will let you open an FHSA if you satisfy these criteria.
If you don’t use the FHSA for a home?
If you decide not to buy a home, you can transfer your FHSA funds tax-free to your RRSP or RRIF. This makes the FHSA a low-risk savings option, as the transfer does not affect your RRSP contribution room.
However, if you withdraw the funds for non-home-related purposes, the amount will be taxable as regular income.
Wrap Up
The First Home Savings Account (FHSA) is a powerful tool for Canadians looking to make their dream of homeownership a reality. With its tax-deductible contributions, tax-free growth, and tax-free withdrawals, it offers a smart and efficient way to save for your first home.
Whether you’re just starting your savings journey or planning your down payment strategy, using the FHSA alongside other options like the TFSA and RRSP can significantly strengthen your financial position.
At Diverse Mortgage Group, we’re here to guide you through every step of your home-buying journey. Our experts can help you understand how to maximize your FHSA benefits and integrate them into a personalized mortgage strategy.
Contact us today to get professional advice and take the next step toward owning your first home.
People May Ask
1. For a first home purchase, may I combine both FHSA and RRSP?
Yes. Combining money from your FHSA with the RRSP Home Buyers’ Plan can raise your whole down payment ability, hence providing you with more financial flexibility.
2. What if I forgot to buy a home with FHSA savings?
You can send penalty-free unused funds to your RRSP or RRIF. Should they withdraw for other reasons, they will be subject to taxes as income.
3. Is FHSA open to immigrants or non-residents living in Canada?
An FHSA may be opened and contributed to only by Canadian citizens. Newly arrived immigrants who meet the first-time buyer and residency requirements may, however, qualify once they settle in Canada.
