The First Home Savings Account (FHSA)

The FHSA gives an RRSP-style tax deduction going in and TFSA-style tax-free withdrawals for a qualifying first home — $8,000 per year up to a $40,000 lifetime limit. If you never buy, the balance can roll into your RRSP tax-free without using RRSP room.

• What the FHSA is, in one paragraph
• Who is eligible
• Contribution room and the carry-forward trap
• The tax treatment (deduction in, tax-free out)
• The 15-year window and age limits
• FHSA vs Home Buyers' Plan vs TFSA
• If you never buy: the RRSP rollover
• A suggested savings order and FAQs

The First Home Savings Account launched in 2023 to help Canadians save for a first home. It combines the best features of the two accounts you already know: like an RRSP, contributions are tax-deductible and reduce your taxable income; like a TFSA, investment growth and qualifying withdrawals are completely tax-free. There is no other account in Canada that does both.

To open and contribute to an FHSA you must:

• Be a Canadian resident aged 18 (or the age of majority) to 71.
• Be a first-time home buyer — meaning you did not live in a home you (or your spouse or common-law partner) owned in the current year or the preceding four calendar years.

Each person opens their own FHSA. You cannot contribute to a spouse's account, but a couple can each open one and both use their FHSAs toward the same home — effectively doubling the room to $80,000 of lifetime contributions across the two of you.

The annual limit is $8,000 and the lifetime limit is $40,000. Room begins accumulating only once you open an account — unlike the TFSA, it does not build up in years before you have an FHSA, so opening one early (even with a small deposit) starts the clock.

Unused room carries forward, but with an important cap: you can carry forward at most $8,000 of unused room. So if you contribute nothing in year one, you can put in $16,000 in year two ($8,000 carried forward + $8,000 new) — but not more. You cannot stockpile several years of room and dump $40,000 in at once; the most in any single year is $16,000.

Going in: contributions are deductible against income in the year you claim them (and, like RRSP deductions, you can carry the deduction forward to a higher-income year if that is more valuable).

While invested: growth is tax-sheltered — you can hold cash, GICs, or investments, and no tax applies to gains inside the account.

Coming out: a qualifying withdrawal for a first home is entirely tax-free — both your contributions and all the growth. This is the feature that makes the FHSA more powerful than either an RRSP or a TFSA for this one purpose.

An FHSA cannot stay open forever. It must be closed by the earliest of: December 31 of the 15th anniversary year of opening your first FHSA; the year you turn 71; or the year after your first qualifying withdrawal. Before that deadline you must either use it for a home, roll it into an RRSP/RRIF, or withdraw it as taxable income.

• FHSA — deduction in, tax-free out, no repayment. Best single account for a first home.
• RRSP Home Buyers' Plan (HBP) — withdraw up to $60,000 from an RRSP tax-free, but you must repay it to your RRSP over 15 years or the shortfall is added to your income. Great for tapping money already in an RRSP; you can combine it with the FHSA.
• TFSA — flexible and tax-free, but no deduction, and using it for a home spends room you might prefer to keep for retirement. Reasonable as a supplement.

Because the FHSA and HBP stack, a couple can potentially assemble a very large tax-advantaged down payment: two FHSAs plus two HBP withdrawals. Compare the accounts in the RRSP vs TFSA guide.

The FHSA has an unusually soft landing. If your plans change and you do not buy a home, you can transfer the entire balance — contributions and growth — to your RRSP or RRIF tax-free, and it does not use up RRSP contribution room. In effect, an unused FHSA becomes bonus RRSP room. That asymmetry is why many advisors suggest opening one as soon as you are eligible even if a purchase is uncertain: the deduction is real now, and the money is not stranded if the plan changes.

• Capture any employer pension or group-RRSP match first — that is free money.
• If buying a first home is realistic within ~15 years, prioritize the FHSA for the deduction plus tax-free withdrawal.
• Layer in the TFSA for flexibility, or the RRSP if your current tax rate is high.
• Plan to combine the FHSA with the Home Buyers' Plan at purchase time.