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First Home Savings Account

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House ownership
Tax-advantaged
savings plans

The First Home Savings Account (FHSA) is a registered plan that gives prospective first-time home buyers the ability to save to their first home on a tax-free basis.[1] The FHSA has an $8,000 annual contribution limit in addition to a $40,000 lifetime contribution limit.[1] There is a maximum participation period on FHSA accounts.

How FHSAs work

Eligibility

The FHSA allows Canadians who are 18 or older and haven’t owned a home in the current calendar year, or in the previous four calendar years, to save up to a total of $40,000 towards the purchase of a home.[2]

More specifically, to be eligible to open an FHSA you must meet the following requirements: be 18 year of age or older and be of legal age in your province or territory; be a resident of Canada and a first-time home buyer.

You will be considered to be a first-time home buyer if, at any time in the calendar year before the account is opened or at any time in the preceding four calendar years, you did not live in a home as your principle residence that you either owned or jointly owner or your spouse or common-law partner owned or jointly owned.[3]

There may be a temptation to open the FHSA as soon as the prospective home buyer turns 18, but "the average age for buying a first home in Canada is around 36", and the maximum participation period for tax-free withdrawals is 15 years[4], so a bit of planning is needed to avoid issues later.

Contribution limits

The annual contribution limit is $8,000 and unused FHSA participation room, to a maximum of $8,000, can be carried forward for one year only.[5] Carry-forward amounts only start accumulating after you open an FHSA for the first time, not when you turn 18.[6]

There is a $40,000 lifetime contribution limit.

Taxation

Like Registered Retirement Savings Plans (RRSP), contributions to an FHSA are tax deductible, either in the year of contribution or a future year.[7]

Like Tax-Free Savings Accounts (TFSA), income and gains inside an FHSA as well as withdrawals will be tax-free[8] under certain conditions (see next section).

Withdrawals

The reason you withdraw property from your FHSA changes how your withdrawal is treated for income tax purposes.[9]

Withdrawing to buy a qualifying home is called a "qualifying withdrawal" and has no tax impact. This can be done without having to wait a minimum number of days after depositing the funds in the FHSA. The withdrawn amount will not to have to be repaid, as buying a first home was the intent of using the account. See the CRA for all the qualifying withdrawal conditions. Failing to meet these conditions may result in a taxable withdrawal.

Other withdrawals are taxable as income and subject to tax withholding. However, a taxable withdrawal will increase your FHSA participation room.

Transfers

Direct transfers from your registered retirement saving plans (RRSPs) to your FHSAs are not deductible.[7]

The rules allow you to make a direct transfer from your FHSA to another FHSA, an RRSP or a Registered Retirement Income Fund (RRIF) and this is not considered a withdrawal.[10]

Cestnick writes that "if you eventually decide to not buy a home, you can transfer those funds to your RRSP or RRIF. This doesn’t use up any of your RRSP contribution room, so these funds can be thought of as additional RRSP savings in the long run, even if you choose to keep renting instead."[11]

Closing an FHSA

There is a maximum participation period on FHSA accounts. It begins when one opens their first FSHA and ends on December 31 of the the year which is earliest of either the fifteenth (15th) anniversary of opening your first FHSA or you turn 71 years of age or the year following your first qualifying withdrawal from your FHSA.[3]

Investing in a FHSA

Qualified investments

The same qualified investments that can be held in a RRSP can be held in an FHSA. These include mutual funds, index funds, Guaranteed Investment Certificates (GICs), bonds, and securities (stocks or exchange-traded funds) listed on a designated stock exchange.[12] Real property is not a qualified investment for an FHSA.

Where to open your account

According to the Ontario Securities Commission, "you can get an FHSA starting in 2023, from banks, credit unions, or any financial institution that issues Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs)",[13] although some institutions have been slow to offer these accounts. A special type of FHSA is the self-directed FHSA, offered by some Discount brokerages, where you have full control of your investments and you can choose from most of the qualified investments listed above.

Investing basics

Asset allocation is the proportion of different assets, such as cash, fixed income and equities (stocks), you hold in an account or in a portfolio. General portfolio design considerations are presented in Portfolio design and construction.

Glide paths for a downpayment

Assuming the FHSA is being used to save for a downpayment, make a plan about how your FHSA's asset mix will change over time, as the desired home purchase approaches. This is sometimes known as a "glide path". The general idea is that the longer you have until the money is needed, the larger the proportion of stocks that can be included initially. But as the date approaches, the proportion of stocks is lowered and the proportion of bonds and cash increases: you want the money to be there when you need it for that down payment!

For relatively longer timeframes, you can consider a mix of stocks and bonds, for example through asset allocation ETFs. These ETFs are low cost very diversified one fund solutions; the entire FHSA can be invested in a single asset allocation ETF.[14][15] Rob Carrick recommends lowering the risk level three years before the planned real estate purchase.[14] The unmentioned reason is likely that historically, most bear markets (plus the recovery period) in stocks have lasted less than 3 years (e.g., [16]). Note that some bear markets (again, plus the recovery period) have lasted longer.

If the home purchase is planned within a few years, fixed income (short bonds, short bond ETFs, GICs) and cash (savings accounts, HISAs, money market funds, ...) are appropriate.[17][18]

With these considerations in mind, the following glide paths can be suggested as approximate examples. Within the table, the years indicate the time before the home purchase. The first number in each cell for different glide paths is the proportion of stocks, the other is the proportion of bonds. For example, 60-40 is a balanced portfolio with 60% stocks and 40% bonds. The four-letter tickers, such as "VBAL", refer to asset allocation ETFs from Vanguard Canada, for illustration purposes. VSB is a short term bond fund, again given as an example. "Cash" means savings accounts and the like (see above).

Glide path 15-10 years 10-6 years 6-3 years 3-0 years
Conservative 50-50 30-70 10-90 Cash
Moderate 60-40 (VBAL) 40-60 (VCNS) 20-80 (VCIP) Cash
Aggressive 70-30 50-50 30-70 VSB + cash

TFSA versus Home Buyers' Plan

Under the final FHSA rules, you can participate in both the Home Buyers' Plan (HBP) and the FHSA for the same home purchase, something that wasn’t originally allowed when the rules were first released.[19]

Therefore, an alternative or complement to saving in a FHSA is to tap into one's Registered Retirement Savings Plan (RRSP) by using the Home Buyers' Plan. This allows RRSP 'loans' of up to $60,000 tax-free. The funds must be repaid to your RRSP over 15 years. If you do not repay on schedule, the missing part of the payment is added to your taxable income for the year, resulting in extra taxes and a permanent loss of RRSP room. The other issue is that even if the repayment schedule is followed, there is a loss of compound, tax-free returns that would have been earned by the RRSP savings if the HBP amount had stayed invested in the RRSP.

If selecting which to use (FHSA or HBP), the timing of the home purchase is a major factor: for short term purchases, if extra cash is not available, the HBP may be the only option. Whereas people with more time before the home purchase (say 5+ years) can use the FHSA over several years.[20]

Administration

Death of a FHSA holder

As with TFSAs, in common law provices you can designate a spouse or common-law partner as a successor holder, in the contract or in a will.[21] This will allow a tax-free takeover if the survivor is a “qualifying individual”.[22] If the survivor is not a “qualifying individual”, they can't become the new holder, but direct transfers to a FHSA, RRSP or RRIF are possible.[22]

If the survivor is a beneficiary but not a designated successor holder, a transfer can be made into the beneficiary's FHSA, RRSP or RRIF.[21] Otherwise, the distribution will be taxable.

If there is no successor holder or beneficiary designated, "the property in the FHSA will be distributed to the deceased’s estate and be taxable as income to the estate".[21] See also CRA: Death and FHSAs.

Relevant forms include:

History

The FHSA was announced in Budget 2022. Bill C-32, which included certain provisions of the 2022 federal budget, was passed into law on December 15, 2022. The bill included the introduction of the tax-free first home savings account (FHSA) effective April 1, 2023.[23]

See also

References

  1. ^ a b "Design of the Tax-Free First Home Savings Account". www.canada.ca. Department of Finance Canada. 2022-08-09. Retrieved 2023-01-09.
  2. ^ Doherty, Brennan (2022-05-09). "How to take advantage of the first home savings account". MoneySense. Retrieved 2023-01-09.
  3. ^ a b "Opening and closing your FHSAs". Government of Canada. 2023-03-27.
  4. ^ advisor.ca, How to properly plan the opening of an FHSA, updated on September 15, 2023, viewed May 25, 2025.
  5. ^ "Participating in your FHSAs". Government of Canada. 2023-03-27. Retrieved April 3, 2023.
  6. ^ "How the First Home Savings Account (FHSA) works". GetSmarterAboutMoney.ca. March 28, 2023. Retrieved April 3, 2023.
  7. ^ a b "Tax deductions for FHSA contributions". Government of Canada. 2023-03-31. Retrieved April 1, 2023.
  8. ^ Ball, Bruce (2022-11-21). "Tax-Free First Home Savings Account – your questions answered". CPA Canada. Retrieved 2023-01-09.
  9. ^ "Withdrawals from your FHSAs". Government of Canada. 2023-03-31. Retrieved April 3, 2023.
  10. ^ "Transfers between FHSAs and other registered plans". Government of Canada. 2023-03-31. Retrieved April 3, 2023.
  11. ^ Tim Cestnick, Nine strategies for using a First Home Savings Account, The Globe and Mail, Updated August 26, 2022, viewed April 3, 2023; available from the author.
  12. ^ "Definitions for FHSAs". Government of Canada. 2023-03-31. Retrieved April 3, 2023.
  13. ^ Ontario Securities Commission, How the First Home Savings Account (FHSA) works, updated October 3, 2023, viewed October 28, 2023.
  14. ^ a b Rob Carrick, A cheap and easy investing strategy for your FHSA, The Globe and Mail, Updated April 11, 2023, viewed April 15, 2023.
  15. ^ First Home Savings Account (FHSA): ETFs to Consider, viewed April 17, 2023.
  16. ^ Investopedia, A Brief History of U.S. Bear Markets, Updated September 23, 2022, viewed April 15, 2023.
  17. ^ Moneysense, What can I hold in an FHSA?, January 9, 2023, viewed April 15, 2023.
  18. ^ Moneysense, First home savings account: A Gen Z guide to achieving home ownership, March 28, 2023, viewed April 15, 2023.
  19. ^ Golombek, Jamie (April 5, 2023). "How to take advantage of the new tax-free first home savings account". Financial Post. Retrieved April 5, 2023.
  20. ^ Think Accounting and Consulting Professional Corporation, FHSA vs RRSP Home Buyers’ Plan: A Detailed Comparison, December 10, 2024, viewed February 16, 2025.
  21. ^ a b c Rudy Mezzetta, How is an FHSA taxed at death?, advisor.ca, updated on June 9, 2023, viewed May 25, 2025.
  22. ^ a b Canada Revenue Agency, After the death of an FHSA holder, viewed May 25, 2025.
  23. ^ Heath, Jason (2023-01-09). "What can I hold in an FHSA?". MoneySense. Retrieved 2023-01-09.

Further reading

External links

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