Alberta and BC Mortgages with Michael Browne

Powered By Origin and Dominion Lending Centres

Get Pre-Qualified

The First Home Savings Account – An All-Inclusive Guide [2024]

The First Home Savings Account (FHSA) - An Overview

Are you a first-time homebuyer in Canada?

Then you’re in luck! 

The Canadian government has recently introduced a new savings account that can help you achieve your dream of owning a home. 

The First Home Savings Account (FHSA) is a registered plan that allows you to save for your first home tax-free, up to certain limits. In this blog post, we’ll go over the basics of the FHSA, including who is eligible to open an account, what kinds of investments are allowed, and how you can use the account to save for your down payment. So, if you’re ready to take the first step towards homeownership, keep reading!

Highlights of the First Home Savings Account

Here are the highlights of the first home savings account

Opening your FHSA

Eligibility - who can open an fHSA?

There are 3 main rules that you need to follow to be able to open and use this account.

 

  1. You must be of legal age – this is 18 in some provinces or 19 in others

  2. You must also be a resident of Canada

  3. The last is that you must be considered a “First Time Home Buyer”. To make things nice and confusing, there are 2 types of First Time Home Buyers when it comes to this program. The type of FTHB you are depend on if you are opening the account or withdrawing from the account:

The 2 definitions of First Time Home Buyers:

First Time Home Buyer for the purpose of opening an FHSA

This one is the same as the HBP (Home Buyer Plan) aka RRSP eligibility. You are a first time homebuyer if you or your spouse/common-law (at the time of opening the account) haven’t owned a personal residence in the last 4 years

First Time Home Buyer for the purpose of withdrawing from your FHSA

First time home buyer if you did not live in a qualifying home as your personal residence that you owned or jointly owned in the last 4 years.

What kind of FHSA accounts can you open?

There are 3 types of FHSA accounts that you can open. This section is probably something you won’t need to pay too much attention to in general. The 3 types are:

  1. Depository FHSA – These types of accounts hold money, term deposits, or GICs

  2. Trusteed FHSA – A trust with a trust company that holds qualified investments such as money, term deposits, GICs, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange

  3. Insured FHSA – This type of account holds an annuity contract


NOTE: Self-directed FHSA are allowed as long as you are utilizing qualified investments

What kind of investments can you invest in with your fHSA?

You can invest in a variety of things with an FHSA, such as money, guaranteed investment certificates, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange. These types of investments are usually similar to the ones allowed with RRSPs.

For more information, either:

  1. Talk to a professional accountant

  2. Go to Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs to read through the qualifying documentation

Depositing Rules for the First Home Savings Account

How much can you contribute into your first home savings account?

You can contribute or transfer up to a certain amount each year to your FHSA, which is known as your “contribution room.”

In the year that you open your first FHSA, your contribution room is $8,000.

The total amount you can save in your FHSA over your lifetime is limited to $40,000.

This means the shortest period of time that you can max out this account is within 5 years.

depositing into your fhsa

What happens if you don't contribute the full amount?

Now, you may be wondering what happens if you don’t use up your entire contribution limit in the year on your First Home Savings Account.

You can carry forward your unused FHSA participation room UP TO a maximum of $8,000.

So if you don’t use it for 5 years, it would not be 5 x $8,000 = $40,000, it would simply be $8,000.

What happens if you contribute too much?

If you accidentally contribute more than the allowed amount to your FHSA, don’t panic!

You’ll just need to pay a monthly tax of 1% on the highest excess amount until it’s eliminated. 

Your excess amount can be reduced or eliminated by your new FHSA participation room on January 1 of the following year, or by removing amounts from your FHSAs.

Rules to Transfer Funds into your FHSA

transferring from your rRSP into your FHSA

When it comes to transferring funds between your RRSP and FHSA, it’s important to note that this is considered a transfer and not a loan (unlike the HBP RRSP loan). The good news is that you won’t face any tax consequences as long as you stay within the participation limit.

However, it’s worth keeping in mind that transferring funds from your RRSP to FHSA won’t restore your unused RRSP deduction room.

Another important point to remember is that transferring from a RRIF to FHSA is not permitted.

Withdrawing Funds from the FHSA to Buy a House

Withdrawal rules for taking funds out of the FHSA

There are 2 main things to keep in mind to withdraw from the FHSA tax-free:

  1. The withdrawal needs to be considered a “qualified withdrawal”. Recall from earlier:

”First Time Home Buyer for the purpose of withdrawing from your FHSA First time home buyer if you did not live in a qualifying home as your Personal Residence that you owned or jointly owned in the last 4 years.”

 

  1. The Withdrawal needs to be a “designated amount” – from the CRA site:

“A designated amount cannot exceed your excess FHSA amount at the time of the designation. Your designated withdrawal of the excess cannot be more than (The total amount contributed to your FHSAs) – (Any amounts previously withdrawn as a designated withdrawal)”

If the withdrawal does not meet these two points then it will be deemed income and you will need to pay tax on it.

Steps to take money out of your FHSA

There are a few steps you’ll need to take to withdraw your funds from the FHSA to buy a new home:

  1. Fill out form RC725
  2. Confirm you are a First Time Home Buyer – recall again from earlier:


First Time Home Buyer for the purpose of withdrawing from your FHSA – First time home buyer if you did not live in a qualifying home as your Personal Residence that you owned or jointly owned in the last 4 years.

  1. Written agreement to buy or a build a qualifying home with the acquisition / construction completion date of the qualifying home before Oct 1 of the year following the date of the withdrawal. A qualifying house is a housing unit located in Canada. This includes existing homes and those being constructed.
  2. You need to have withdrawn the funds no more than 30 days after the purchase of the property
  3. You must occupy or intend to occupy the qualifying home as your principal place of residence within one year after buying or building it

Can you combine the Home buyer's plan (HBP) and the First Home Savings Account (FHSA)?

Luckily, yes!

Originally, the rules were going to be designed where you can only use one or the other. Fortunately, when implemented, this was changed so that you can actually use both programs.

That means you can use:

  • Up to 35k from each applicant’s RRSP who qualifies for the Home Buyer Plan

  • Up to the “designated amount” from the First Home Savings Account for each applicant who qualifies

Transferring Funds out of your FHSA

Transferring funds from your first home savings account into your RRSP or RRIF

There typically isn’t tax consequences when you transfer funds from your FHSA into your RRSP.

This means that you shouldn’t pay any tax on the funds moved.

It also means that you won’t change your unused RRSP deduction room!

Closing your First Home Savings Account

It’s important to note that you will, at some point, need to close out your FHSA account.

You’ll need to close all of the accounts on or before Dec 31 after your first qualifying withdrawal.

The Official Docs:

If you’re interested, you can read the official CRA documents for this program here.

More To Explore

Looking to stay up to date on real estate, investing, and the Canadian economy?

Sign Up For My Newsletter for weekly mortgage rate and real estate updates:

Get access to current market updates, case studies, and things I'm working on.

Join my Email Newsletter

Download the First Home Monthly Budget Worksheet

Is the first time home buyer incentive for you?

Download the worksheet here