In 2023, Canadians have a new way to save for their first home purchase: the First Home Savings Account (FHSA). This registered savings account is designed for Canadians 18 or older who haven’t owned a home they’ve lived in within the past four years. Unlike some savings plans, the FHSA doesn’t open automatically; you’ll need to initiate it with a provider. If homeownership is in your plans, consider opening an FHSA soon, even if you aren’t ready to make contributions right away. Note that you’ll need to file an income tax return for the year you open the FHSA.
One advantage of the FHSA is that, like a TFSA or RRSP, it offers a range of investment options, including stocks, ETFs, and mutual funds. The FHSA combines the tax-free benefits of a TFSA and the tax-deductible contributions of an RRSP, but it’s specifically designed for first-time homebuyers. You can contribute to the FHSA until you reach its lifetime limit or for up to 15 years after opening the account.
The FHSA is different from the RRSP Home Buyers’ Plan (HBP), which allows for a $35,000 RRSP withdrawal toward a first home purchase, requiring repayment to avoid taxes. Unlike the HBP, FHSA withdrawals don’t need to be repaid, making it a more flexible option for first-time buyers.
To open an FHSA, you’ll need a certified issuer, such as a bank or credit union. You can contribute up to $8,000 annually, with a lifetime limit of $40,000, and any unused contribution room can carry forward to the next year. For example, if you contribute $5,000 in 2023, your contribution limit for 2024 would increase to $11,000.
If you don’t have immediate savings, you can also transfer funds directly from an RRSP to an FHSA without tax implications, though these transfers count toward your annual and lifetime FHSA limits and don’t restore RRSP contribution room.
To qualify for an FHSA, you must not have owned any real property in the past four years, either individually or jointly with a spouse or common-law partner. Additionally, your spouse or partner cannot currently own the home you live in.