For many people, buying their first home is a lifelong dream. A First Home Savings Account (FHSA) makes that dream more attainable.
“An FHSA helps you save to buy or build a qualifying home, tax-free,” says Diana Halvadzija, Wealth Solutions Advisor at Cambrian and Aviso Wealth.
How does the FHSA make it easier to save for your first home?
We sat down with Diana to answer the most common questions about the FHSA, diving into details about contribution limits, qualifying withdrawals, and more:
The FHSA is a type of registered savings plan that allows Canadians to save up for the purchase of their first home, tax-free!
Once the account is open, you can contribute up to $8,000 to it per year. You will start earning more contribution room after you open the account, gaining $8,000 of contribution room each year.
“The lifetime maximum you can contribute to the account is $40,000,” says Diana.
You can carry forward a maximum of $8,000 of unused contribution room to the next year.
Example: In 2024, you open an FHSA and contribute $5,000 to it.
The next year, you earn an additional $8,000 of contribution room. You also carry forward the unused $3,000 from last year.
In 2025, you can contribute $11,000 to your FHSA.
You might be wondering: Is the FHSA tax deductible?
The answer is yes - as long as you use the money to buy or build a qualifying home.
“The FHSA is a great program for first time home buyers because it gives you a tax break. You’ll get a tax receipt to claim on taxes, just like you would with RRSP contributions,” says Diana.
The FHSA combines the tax-benefits that TFSAs and RRSPs offer – so you get the best of both!
To open your FHSA, you must be:
“TFSAs and FHSAs are very similar in the sense that you can use both to save money, and any interest you earn is tax-free. Qualifying withdrawals can be made tax-free,” says Diana.
“The difference is that FHSAs must be used to purchase a home, while a TFSA can be used to purchase anything.”
“Traditionally, an RRSP is used to save for retirement. However, there is a Home Buyers’ Plan withdrawal option through your RRSP which allows you to withdraw funds to purchase a home,” says Diana.
How is the FHSA different than the RRSP Home Buyers’ Plan (HBP)?
Under the HBP, you can withdraw up to $60,000 from your RRSP tax-free and use it towards buying or building a home. You then have 15 years to repay that money back to your RRSP.
“The difference between the HBP and the FHSA is that with the FHSA, you don’t need to pay back the funds.”
On top of that, there’s another downside to using your retirement fund to buy your home: Opportunity cost.
If you withdraw money from your RRSP and spend the next 15 years paying it back, you’re only paying back what you owe instead of accumulating more income for your retirement.
If you withdraw RRSP funds through the HBP, try to make additional contributions on top of your repayments. This way, you’ll still be working towards your retirement goals.
Plans have changed, and you no longer intend to buy a home with the funds in your FHSA. What now?
The money in your FHSA is only tax-free if you use it to buy a home. Otherwise, the funds are fully taxable. You will need to pay taxes on both your contributions and your investment gains.
However, there is an alternative: You can transfer your FHSA to your RRSP. Then, you can delay withdrawing the money until you’re in a lower tax bracket.
Even if you decide not to buy a home with the money in your FHSA, you can use those funds for your retirement instead.
You must buy a home within 15 years of opening the FHSA.
After that, you must close the account by either withdrawing the money (and paying taxes on it) or transferring it to a RRSP.
“You can open an FHSA with our Wealth & Advisory Services team through Aviso Wealth. Talk to one of our licensed financial advisors to learn more!” says Diana.
Investing is a great way to grow your home savings even more. Like all registered savings plans, only certain types of investments will qualify.
If you’d like to talk about your FHSA investment options, we’d be happy to help. Book a meeting today!
Disclaimer
Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.
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