FHSA from A to Z: A Complete Guide for First-Time Home Buyers

The First-Time Home Buyers’ Tax-Free Savings Account (FHSA ou CELIAPP en français) is a registered account established by the federal government to allow individuals to save for the purchase of their first home. The FHSA was created in 2022 and came into effect on April 1, 2023.

The FHSA complements existing registered savings plans such as the Tax-Free Savings Account (TFSA), the Registered Pension Plan (RRSP), the Registered Education Savings Plan (RESP), the Registered Disability Savings Plan (RDSP), and the Registered Retirement Savings Plan (RRSP), which already includes a first-time homeownership component through the Home Buyers’ Plan (HBP).

This article covers:

• FHSA eligibility criteria
• Contribution rights
• Tax and the FHSA
• FHSA withdrawals
• Transfer options between the FHSA and the RRSP
• How to invest in an FHSA

FHSA Eligibility Criteria

To be eligible to open an FHSA with your financial institution, you must meet the following conditions:

• Be a Canadian resident
• Be at least 18 years old
• You must not have occupied a dwelling as your principal residence that you or your romantic partner owned at any time during the part of the year preceding the opening of the FHSA or at any time during the four preceding calendar years. In other words, you must be a first-time homebuyer.

However, the maximum age for opening an FHSA is limited to 71 years. This age limit was likely set for consistency with the RRSP. In fact, in the absence of this limitation, an individual over 71 years of age could still have contributed to their FHSA if they met the other eligibility rules. In doing so, the FHSA could then have been transferred to their Registered Retirement Income Fund (RRIF), which would have increased the individual’s retirement savings even though they would no longer be eligible to contribute to their RRSP.

Note:

Owning a property does not automatically disqualify you from opening an FHSA if the property in question is not your principal residence (e.g., if it is a cottage, a secondary residence, or an apartment building).

For example, the owner of an apartment building held for investment purposes and not used as her principal residence is still eligible for the FHSA. She can also use her RRSPs to finance her down payment under the HBP for up to a tax-free withdrawal of $35,000. She is also eligible for the first-time homebuyer tax credits. The eligible amount is $10,000 per property for a net credit of $1,500 for the federal government and $1,400 for the province of Quebec.

Contribution Rights

If you meet the eligibility requirements, you can hold multiple FHSAs. However, there are annual and lifetime contribution limits. You can contribute up to $8,000 per year to your FHSA, tax-free. 

The lifetime contribution limit for the FHSA is $40,000. If you contribute the maximum amount each year, you will reach this limit in 5 years. Overcontributions to the FHSA are not allowed. Overcontributions are subject to a 1% monthly tax. This tax applies for one month if there is an overcontribution at any time during the month.

Unused contribution rights from the annual FHSA contribution limit can be carried forward up to a maximum of $8,000, which is equivalent to the maximum FHSA deduction for a single year. Please note that unused contributions only accumulate after you open your FHSA for the first time.

For example, if you open your FHSA in 2024 and contribute $5,000 to it, the following year (i.e., 2025), you will be able to contribute $11,000. Of this amount, $8,000 comes from the maximum annual contribution for 2025 and $3,000 comes from unused contributions from 2024.

 The FHSA closes:

• No later than December 31 following the 15th anniversary of the opening of the first FHSA in the taxpayer’s name;
• On December 31 following the account holder’s 71st birthday; or
• On December 31 of the year following the year in which a withdrawal was used to purchase a first property.

You can only use the FHSA to purchase a property once in your lifetime. Even if you are able to open more than one FHSA, your maximum participation period begins when you open your first FHSA. In other words, the opening date of the first FHSA is what determines the 15-year deadline.  

In this way, the FHSA differs from the RRSP and the TFSA, because its parameters limit the participation period to a fixed period. The only similarity to the RRSP is that the plan closes in the year the taxpayer reaches the age of 71.

Taxes and the FHSA

Contributions to the FHSA are tax deductible in the current year. You are not required to claim a deduction for an FHSA contribution in the year you contributed. The deduction can be carried forward to a subsequent year from the year of the contribution. Please note, however, that contributions made in the first 60 days of a year cannot be tax deductible for the previous tax year.

In addition, contributions made in the year of acquisition of the first property remain deductible when they were made before the eligible withdrawal for the purchase of the first home. Even after the withdrawal for the purchase of the first home, as long as the FHSA is not closed, no later than the end of the year following, you can continue to contribute to the FHSA (respecting your contribution limit). However, these contributions made after an eligible withdrawal are not tax deductible. They remain transferable (to your RRSP or TFSA, for example).

Unlike the HBP, the FHSA does not have a minimum 90-day holding period within the plan in order for the contribution to be tax deductible.

FHSA Withdrawals

FHSA withdrawals can be taxable or non-taxable

Eligible Withdrawals

For a withdrawal from your FHSA to be considered an eligible withdrawal, the following conditions must be met (at the time of withdrawal):

• Submit a written request for an eligible withdrawal using Form RC725, indicating the location of the eligible dwelling that you have started to use as your principal residence or that you intend to start using as your principal residence no later than one year after its acquisition;
• Reside in Canada throughout the period from the time of withdrawal to the earlier of the date of acquisition of the eligible dwelling and the date on which you cease to reside in the eligible dwelling;
• Not have been a homeowner-occupant during the period from the beginning of the fourth calendar year before the withdrawal to the 31st day before the withdrawal;
• Have entered into a written agreement to acquire or construct the eligible dwelling before October 1 of the calendar year following the year in which the amount is received;
• Not have acquired the eligible dwelling more than 30 days before.

Ineligible Withdrawals 

If your FHSA withdrawal does not meet the conditions listed above, it will be considered a taxable ineligible withdrawal and will be subject to withholding tax at source. To avoid this, you can always transfer the available funds in your FHSA to your RRSP or TFSA, at any time before the FHSA closes.

Transfer Options

The First-Time Home Savings Account (FHSA) offers two main transfer options:

Transferring from FHSA to RRSP or TFSA or RRIF

If you decide to transfer funds from your FHSA to an RRSP or TFSA or RRIF, you can expect the following:

• You can transfer funds at any time. There is no need to wait until you close your FHSA.
• You will not have to pay taxes on the amount you transfer, unless you have overcontributed to your FHSA. If you have overcontributed, you will have to pay taxes on the excess amount.
• The tax implications of your transfer will be deferred until you withdraw the funds from your RRSP or RRIF. At that time, you will have to pay taxes on the withdrawals.
• The amount you transfer to your RRSP will not be subject to your RRSP contribution limits. This means that you can still contribute the maximum amount to your RRSP in the year you make the transfer.
• The amount you transfer to your FHSA will not affect your FHSA contribution limits. This means that you can still contribute the maximum amount to your FHSA in the year you make the transfer.

Transferring from RRSP to FHSA

If you decide to transfer funds from your RRSP to your FHSA, you can expect the following:

• You will not have to pay taxes on the amount you transfer if you use the RC720 form. However, if you do not use the RC720 form, you may have to pay taxes on the amount you transfer.
• The amount you transfer is limited by your FHSA contribution limits. This means that you can only transfer as much as you have room for in your FHSA.
• The amount you transfer is not tax deductible. This means that you cannot claim a tax deduction for the amount you transfer.
• Your RRSP contribution limits are not restored after you make a transfer. This means that you will still have the same RRSP contribution limits in the year you make the transfer.
• If you are transferring funds from a spousal RRSP to your FHSA, the funds must have been in the spousal RRSP for at least three years before you can transfer them.

How to Invest in a FHSA?

Once you have opened your First-Time Home Savings Account (FHSA) and started making contributions, you can invest the available funds with a financial advisor or through online brokerage platforms (Questrade, Wealthsimple, etc.). You can invest in the same eligible investments as you can in a TFSA, such as stocks, bonds, Exchange-Traded Funds (ETFs), Guaranteed Investment Certificates (GICs), and mutual funds.

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Disclaimer: While I strive to provide valuable information, I am not a financial advisor. The content on this page is intended for informational purposes only and should not be taken as financial advice. To choose the financial asset that best fits your individual profile, consult with a professional financial advisor and discuss your specific circumstances.