How to Use the First Home Buyers Savings Account (FHSA)

Posted by Ludmil Natchev 28-09-2022

The rise in prices across residential real estate in Canada over the past decade has been unprecedented. The chart below shows how drastically home prices have outpaced increases in disposable household income, which has led many people to stay in the rental pool and delay homeownership much longer than they would like. The federal government has started to take note of this issue and recently introduced a new savings account to help first time homebuyers with their down payment. We take a look at the First Home Buyers Savings Account (FHSA), how it works, and how it fits into the bigger picture of financial planning.

Plan design

The FHSA is a hybrid between the RRSP and the TFSA. The plan allows account holders to contribute on a pretax basis like the RRSP, so any contribution would lower taxable income for that year. Like the TFSA, any contributions and investment income can be withdrawn tax-free. Anyone who is a resident of Canada and above the age of 18 can open an account and start contributing, but there is an $8000 annual contribution limit and a $40,000 lifetime contribution limit. If less than $8000 is contributed in any given year, an individual can carry forward the unused portion of their annual contribution room in subsequent years.


It’s important to mention that in order to make tax-free withdrawals, the account holder must be a first-time homebuyer. For the purposes of this account, this means that the individual has not owned a home during that calendar year and in the preceding 4 years. If the account holder decides that they are no longer purchasing a home or they have some left over funds in the account after making a down payment, funds can be transferred to an RRSP or withdrawn on a taxable basis. Transfers to the RRSP are penalty free, and this doesn’t impact the taxpayer’s contribution room. There is also an option to transfer funds in an RRSP directly to an FHSA, however in this case a transfer would not reinstate the RRSP contribution room lost. It is also important to note that the FHSA will be closed 15 years after opening the account or when the account holder turns 71.

Comparison with the Home Buyers’ Plan (HBP)

Unlike the RRSP, you wouldn’t be able to contribute to your spouse or common law partner’s FHSA and claim the deduction under your name. Additionally, the Home Buyers’ Plan (HBP), which allows RRSP holders to withdraw $35,000 from their RRSP without a withholding tax to purchase their first home, cannot be used in tandem with the FHSA. The key difference to mention between the two plans is that the $35,000 withdrawn from the RRSP must be paid back within 15 years, starting the second year after you withdraw the funds. Any missed payments will result in a loss of RRSP contribution room permanently. These payments would still eventually be subject to tax, therefore the FHSA also provides more of a tax advantage since contributions are deductible and withdrawals are not taxed if the aforementioned conditions are met. Despite the drawbacks of the HBP, there are certain instances where it may be preferred. For example, if you were planning on buying a home in the next couple of years, the FHSA would only allow you to save $16,000 based on annual contribution limits, while up to $35,000 could be withdrawn from the RRSP.

Start date

The Canadian government plans on implementing the FHSA in 2023. Therefore a lot could still change with the plan if new rules are introduced. Given that the annual contributions allowed are fairly small, it is unlikely that the account will help Canadians become homeowners. However, if leveraged correctly, the FHSA could help people save for retirement.

Open an FHSA immediately

As discussed above, you will receive $8,000 worth of contribution room every year, up to a lifetime maximum of $40,000. This contribution room can be carried forward. However, the FHSA has an interesting quirk. Contribution room only starts accumulating after the account is open. For example, if you wait a year after the account is introduced, and you open an FHSA in 2024, you will only be able to contribute $8,000. If you, however, open the account in 2023, you would be able to contribute $16,000 in 2024.

Always choose FHSA over HBP

If you have maximized the FHSA by the time you plan to purchase a home, it is the better account to use for a down payment. You will accumulate more money in it, and you won’t have to make a repayment. The FHSA also provides a tax deduction and the ability to contribute above and beyond the RRSP limit, whereas the HBP simply allows you to unlock a portion of a pre-existing RRSP.

FHSA Contributions should take precedence over RRSP contributions

It makes sense to contribute to an FHSA before you contribute to an RRSP in case you don’t have the funds to maximize both. This applies even if you have no intention of buying a house. The reason for this is that if you contribute $40,000 to an RRSP and decide you want to buy a real estate property, you can only transfer these funds to the FHSA. Any growth generated by the initial investment will have to stay in the RRSP. On the other hand, if you contribute $40,000 to your FHSA instead, the original amount plus the appreciation can all be withdrawn tax-free to buy a home. In addition, if you contribute to your RRSP first and then transfer funds to your FHSA, you won’t get your RRSP contribution room back, whereas contributing to an FHSA can be done over and above your RRSP deduction limit. Most importantly, you can contribute to an FHSA and then transfer those funds to an RRSP. This transfer won’t use up any of your RRSP contribution room, so these funds become de facto RRSP savings over time.

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