Last year the federal government launched a new registered savings plan, the First Home Savings Account (FHSA), which allows eligible first-time home buyers to save for a qualifying home tax-free (up to a certain limit). Like many Canadians, you may have questions about how the new account works, how it differs from existing registered plans and, ultimately, whether or not the FHSA could be the right fit for you.

What is an FHSA?

The new First Home Savings Account is a registered plan that combines some of the features of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA) to help you save towards your first home. For example, like a TFSA, the FHSA allows your qualifying investments to grow tax-free without having to pay tax when making a withdrawal to purchase a home.1 At the same time, like an RRSP, eligible contributions to an FHSA are generally tax-deductible — meaning that you can claim an income tax deduction for your eligible contributions within each taxation year. You cannot claim a tax deduction for any FHSA contributions that you make after your first qualifying withdrawal.

What are the rules?

To be eligible to open an FHSA, you must be 18 years or older (but no more than 71 years on December 31st of the year you open an FHSA), a resident of Canada and be considered a “first-time home buyer.”2 For the purposes of opening an FHSA, you may be considered a first-time home buyer if you have not lived in, as your principal place of residence, a home that you own or co-own in the year you plan to open the FHSA or at any point in the preceding four years.

$8,000

$8,000 is the amount you can contribute annually to the new First Home Savings Account, up to a lifetime contribution limit of $40,000.

What happens if your spouse or partner owns a home, for instance, through an inheritance or through a previous marriage? If you are not the co-owner, do not live in the home, and have not lived in it at any point in the preceding four years, you may qualify as a first-time home buyer for the purpose of opening an FHSA to purchase a (separate) home.

Additionally, if you lived in a home owned by your spouse or common law partner during the relevant time, but the relationship has ended by the time the account is opened, you may be considered a first-time home buyer.

An FHSA account holder can contribute up to $8,000 to their FHSA each year, with a maximum contribution limit of $40,000 during the 15-year lifespan of the account, which is called the Maximum Participation Period (defined below). This contribution room begins accumulating the first time an initial FHSA is opened, even if you don’t begin making contributions right away.3 Note, you can only carry forward a maximum of $8,000 in unused contribution room to the following year for a maximum yearly contribution of $16,000.4

Eligible contributions may be made with cash or with qualifying funds transferred from your RRSP. However, if you transfer funds from your RRSP, these amounts are not tax-deductible and will affect your FHSA contribution room. Unlike some types of registered accounts, an FHSA can only be held until December 31st of the year in which the earliest of the following occurs, also known as the Maximum Participation Period:

  • the 15th anniversary of opening your first FHSA
  • the year you turn 71
  • the year following your first qualifying withdrawal

If you do not purchase a home within the FHSA participation period, your FHSA will be closed and the fair market value in the plan will be taxable income. Alternatively, you may choose to directly transfer the FHSA balance to your RRSP or RRIF within the participation period. Speak with your tax advisor for more details.5

If you are a couple looking to purchase a home, both you and your partner may benefit from opening your own accounts to get the maximum benefit of an FHSA, provided you each qualify individually.

What's the difference between an FHSA, a TFSA and an RRSP?

FHSA account holders enjoy many of the same benefits offered by a TFSA or an RRSP.

For example, TFSA holders generally enjoy tax-free withdrawals at any time, but don’t receive a tax deduction for their contributions. Conversely, RRSP holders may claim their contributions against their income, but must pay tax on withdrawals, except in instances like the Home Buyers’ Plan (HBP). With an FHSA, qualifying withdrawals are tax-free. Contributions to your FHSA are generally tax-deductible.

What’s the difference between an RRSP HBP withdrawal and a qualifying withdrawal from an FHSA?

Although both the Home Buyers’ Plan (HBP) and the FHSA may be available to help you fund the purchase of a home, the HBP only allows you to borrow money from your RRSP — you’ll be required to pay it back within 15 years otherwise it will be treated as taxable income.6 When you make a qualifying withdrawal from your FHSA, you are not required to pay it back to your FHSA.1 You can also participate in both the HBP and make a qualifying withdrawal from your FHSA for the same qualifying home, as long as you meet all requirements at the time of each withdrawal.

FHSAs, TFSAs and RRSPs all have benefits and drawbacks depending on your personal situation and you may be able to use a combination of accounts to help achieve your specific financial goal. Here are some other key differences and similarities to know when you’re saving to buy a home:

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.6 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).
What are the contribution rules?
$8,000 is the current annual contribution limit. Carry-forward rules apply.4 $40,000 is currently the maximum lifetime contribution limit during the Maximum Participation Period.
The lesser of 18% of your previous year's income or $31,560 for 2024. You can carry forward any unused contribution room from the year before.7 No lifetime contribution limit.
$7,000 is the annual contribution limit for 2024. Your contribution room starts accumulating from the year you turn 18 or 2009 when TFSAs were introduced, whichever is later. You can carry forward unused contribution room. Funds can be withdrawn tax-free at any time and any amount withdrawn is added back to your contribution room the next year. 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 they open an FHSA, who have a valid Social Insurance Number (SIN) and are considered a first-time home buyer.2
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 and an RRSP.2
Will I get a tax deduction on eligible contributions?
Eligible contributions are tax-deductible (except on transfers into your FHSA from your RRSP).
Eligible contributions are tax-deductible (except on transfers into your RRSP from your FHSA).
No. Contributions are not tax-deductible.
Key Advantages8
Qualifying investments 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.
Qualifying investments can be used towards the purchase of a qualifying home under the HBP. Qualifying investments can grow within the plan tax-deferred.
Qualifying investments 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.
Under the HBP, qualifying RRSP withdrawals used to buy or build a qualifying home must be returned to your RRSP within 15 years and repayment begins the second year after the year when you first withdrew funds. If you fail to repay the required amount in a given year, that amount will be added as taxable income in that year.
Contributions made to a TFSA are not tax-deductible.
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Can I use all three types of registered savings accounts at the same time or do I have to choose one?

Contributing to one account does not mean you cannot contribute to other registered savings accounts. One account may suit you in one phase of life, some accounts are suitable for pursuing a specific goal, but you can use multiple accounts for different purposes at the same time. Notably, FHSAs are intended for first-time home buyers, therefore, if that is your main goal and you meet the qualifications, you don’t have to look further. Another option is an RRSP. Although it is designed for retirement savings, under narrow parameters, an RRSP can be used to fund education or help buy a home. TFSAs are an all-purpose savings vehicle that can be used for any goal, whether short- or long-term.

Since most of us have a budget, our savings goals should guide us as to where to put our funds. While everyone’s situation is different, we may wish to target one goal, and therefore use one type of account in different phases of our lives. A discussion with a TD Personal Banker can assist you to determine whether an FHSA, a TFSA and an RRSP can help with your financial goals.

MONEYTALK STAFF
ILLUSTRATION DANESH MOHIUDDEN
Find out how we can help you move towards home ownership with the FHSA. Learn More
  1. For a qualifying FHSA withdrawal, you must be a first-time home buyer; you must have a written agreement to buy or build a qualifying home with the acquisition or construction completion date of the qualifying home before October 1 of the year following the date of the withdrawal; you must not have acquired the qualifying home more than 30 days before making the withdrawal; you must be a resident of Canada from the time that you make your first qualifying withdrawal from one of your FHSAs until the earlier of the acquisition of the qualifying home, or the date of your death; you must occupy or intend to occupy the qualifying home as your principal place of residence within one year after buying or building it.
  2. For the purpose of opening an FHSA you will be considered to be a first-time home buyer if you did not, at any time in the current calendar year before the account is opened or at any time in the preceding four calendar years, 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, or your spouse or common-law partner (at the time the account is opened) owned or jointly owned. In certain provinces and territories, the legal age at which an individual can enter into a contract, including opening a FHSA, is 19. You must be at the age of majority in your province of residence and provide a valid Social Insurance Number (SIN).
  3. For instance, you can contribute $5,000 to your FHSA in Year 1 and then $11,000 ($8,000 yearly contribution limit + the remaining $3,000 from the year before) in Year 2.
  4. You can carry forward your unused FHSA participation room at the end of the year, up to a maximum of $8,000, to use in the following year. This amount is referred to as your FHSA carryforward. Any FHSA carryforward will be included in the calculation of your FHSA participation room for the year.
  5. A direct transfer is a transfer completed directly between the financial institutions of the two plans or accounts involved. To complete a direct transfer, you must fill out a transfer form and give it to your financial institution. Transfer fee(s) may apply.
  6. Certain conditions must be met in order to be eligible to participate in the HBP, including the following: you must be considered a first-time home buyer; you must have a written agreement to buy or build a qualifying home, either for yourself or for a related person with a disability; you must be a resident of Canada when you withdraw funds from your RRSPs under the HBP and up to the time a qualifying home is bought or built; you must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it. If you help a related person with a disability to buy or build a qualifying home, you must intend that the related person with a disability occupies the qualifying home as their principal place of residence. In all cases, if you have previously participated in the HBP, you may be able to do so again if your repayable HBP balance on January 1st of the year of the withdrawal is zero and you meet all the other HBP eligibility conditions.
    A qualifying home under the HBP is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings all qualify. A share in a co-operative housing corporation that entitles you to possess and gives you an equity interest in a housing unit located in Canada, also qualifies. However, a share that only provides you with a right to tenancy in the housing unit does not qualify. For condominium units, you are considered to own the unit the day you are entitled to immediate vacant possession of it.
  7. The CRA calculates your annual contribution limits based on unused RRSP deduction room at the end of the preceding year plus the lesser of 18% of your earned income in the previous year OR the annual RRSP limit and other adjustments, where applicable. This can be found on the bottom of your latest Notice of Assessment or Reassessment or CRA MyAccount.
  8. Each registered plan has different eligibility criteria, features and tax implications. For detailed tax information please speak to a tax advisor.