Since 2023, a new tax-free savings account has been introduced in Canada to help you access the real estate market. In this guide, we explain everything you need to know about the FHSA (tax-free savings account for first-time home buyers): how it works, eligibility criteria, contribution rights, tax deductions, tax-free withdrawals and eligible investments. With its tax advantages, you’ll quickly realize that it’s the most powerful savings plan ever created in Canada.
The First Home Savings Account (FHSA) is a new savings plan that allows eligible first-time homebuyers to save tax-free.
However, FHSA offers much more… It allows tax-deductible contributions like RRSPs and tax-free withdrawals like TFSAs.
What’s more, withdrawals from your FHSA are not limited to a fixed amount like the HBP ($60,000). In fact, although your lifetime contribution room at FHSA is $40,000, your entire FHSA account (contributions and returns) can be used to purchase your first qualifying home. Which is a huge advantage.
For example, if you invest $8,000 a year in your FHSA and earn an average annual return of 5%, you will have accumulated $46,415 after 5 years. If you wait 15 years before using your FHSA (maximum holding period), you will have accumulated $75,606… which you can withdraw tax-free to buy your first eligible home.
The key elements of FHSA are:
To open a First Home Savings Account (FHSA), you must meet the following requirements:
You can open more than one FHSA. However, the total amount of your RRSP contributions or transfers must not exceed your contribution room for the current year.
To qualify as a first-time home buyer, you must not have owned or co-owned a principal residence (owned by you or your spouse/common-law partner) during the current calendar year or at any time during the previous four calendar years.
To avoid tax consequences, you must close your FHSA no later than December 31 of the year in which the first of the following events occurs:
If you have unused contributions, you can transfer them to your RRSP or RRIF tax-free. Otherwise, withdrawals will be taxable in the current year.
The contribution room to the FHSA is $8,000 per year, for a lifetime maximum of $40,000. Unused contribution room can be carried forward to the following year, but please note that :
As with an RRSP, your FHSA contributions are tax-deductible for the current year.
For example, if you contribute $8,000 to your FHSA in 2025, your taxable income for 2025 will be reduced by the same amount. With a marginal tax rate of 36%, you would receive a tax refund of $2,880. You can use this tax refund as you see fit… including for a new contribution to the plan.
Finally, unlike RRSPs, your contributions made during the first 60 days of the year are not tax-deductible for the previous taxation year.
Withdrawals from FHSA are tax-free if used to purchase or build a first eligible property.
Unlike the HBP/RRSP, your FHSA contributions can be used immediately to purchase your first property.
As previously mentioned, you must close your FHSA no later than December 31 of the year following your first eligible withdrawal. If you have unused contributions in your FHSA, you can transfer them directly to your RRSP or RRIF.
If you withdraw the remaining amounts, they will be included as income on your income tax return for the current year. You’ll have to pay tax accordingly.
Unlike RRSPs, it is not possible to participate in your common-law partner’s/spouse’s FHSA. Your common-law partner/spouse is the only person authorized to open his or her own FHSA and claim tax deductions for contributions to his or her FHSA.
FHSA is available to Canadian residents only. If you become a non-resident of Canada after opening an account at FHSA, you may continue to participate. However, you will not be able to make a withdrawal for the purchase of a first qualifying property as long as you are a non-resident.
Like the RRSP and TFSA, the FHSA is not an investment. Rather, it is a savings account in which you can invest:
These investments are offered through a FHSA issuer, such as a financial institution, chartered bank, credit union, trust company or insurance company. You can also manage your own investments using an online brokerage platform like Wealthsimple.
The funds you hold in your RRSP can be transferred to your FHSA, as long as you respect your contribution room FHSA. Of course, you won’t be entitled to a new tax deduction. However, this transfer allows you to make a tax-free withdrawal without having to pay it back (unlike an RRSP).
Conversely, if you don’t use all or part of your FHSA, you can transfer the amounts to your RRSP tax-free.
If the total of your contributions and transfers to FHSA exceeds your contribution room in a given year, you will have an excess. You must pay a tax of 1% per month on excess contributions to your FHSA.
To eliminate excess contributions, you can do one of the following:
The FHSA (First Home Savings Account) and the HBP (Home Buyers’ Plan) are two registered plans designed to help you enter the real estate market.
FHSA lets you save up to $40,000 tax-free. What’s more, you can withdraw your entire FHSA account (contributions and returns) tax-free to purchase your first qualifying property.
The HBP is a program that allows you to withdraw up to $60,000 from your RRSPs to buy or build a qualifying home. However, you must repay this amount to your RRSP over a 15-year period, beginning two years after your withdrawal.
That said, you can combine FHSA and the HBP to buy your first qualifying home. That’s a nice sum: $40,000 (plus return) from your FHSA and $60,000 from your RRSP (HBP), for a total of $100,000. For a couple, the figure doubles to $200,000.
Ideally, you should maximize all your registered savings plans: FHSA TFSA, RRSP, RESP, RDSP, etc. However, it is difficult for the majority of Canadian taxpayers to do so, considering the contribution limits:
As a result, the optimal strategy for choosing between different savings accounts (or a mix of them) differs from person to person. The strategy depends on personal and financial situation, as well as financial objectives.
Don’t hesitate to consult a financial professional for a strategy tailored to your situation and objectives.
In short, the FHSA is undoubtedly Canada’s most powerful tax tool. It combines the advantages of both RRSPs and TFSAs, including tax-deductible contributions and tax-free withdrawals. For Canadian residents wishing to enter the real estate market, FHSA is a considerable asset and an opportunity not to be missed.
FHSA is designed to help Canadians enter the housing market. Among other things, it allows you to save up to $40,000 tax-free on the purchase of a first eligible home.
Canadian residents aged 18 or over who are eligible first-time home buyers can open a FHSA account.
You must choose a financial institution, such as a chartered bank, credit union, trust company or insurance company. Then you can invest in ETFs or other eligible investments.
The contribution room at FHSA is $8,000 per year, for a lifetime maximum of $40,000.
Withdrawals from FHSA are not taxable for the purchase or construction of a first eligible property.
RRSPs allow you to save for retirement, but also to buy your first home (HBP) or return to school (LLP). The FHSA allows easier access to the real estate market: up to $40,000 in tax-sheltered savings, tax deduction and tax-free withdrawal for the purchase of a first eligible property.
The TFSA is a tax-sheltered savings vehicle. Contributions are not tax-deductible, but withdrawals are tax-free. The contribution limit is $7,000 in 2025.
The maximum contribution to FHSA in 2025 is $8,000.
Savings are here:
