The first home savings account (FHSA) was introduced in 2023 to help Canadian first-time home buyers save for their down payment. If you qualify and have money to invest, this is the most powerful registered account that you can use. It eliminates tax if you use the money to buy a house (essentially a government subsidy). Even if you do not buy a home, the FHSA has tax advantages. After 15 years, you can add it to your RRSP to keep tax-deferred growth working for you. Time is of the essence to make the most of this gift, given how the contribution room works. Learn more about how to qualify, open, and use an FHSA to your full advantage. I will also highlight some cool strategies to make the most of your FHSA as part of your home buying plan.
The FHSA is a Tax Trasher
As I joked back in Episode 8 of The Money Scope Podcast, an FHSA is basically the house-obsessed love child of an RRSP and TFSA. It gets the tax advantages of both those tax shelters. The result is tax elimination if you use it to buy a qualifying home. Or even furniture for that home. Even if you don’t buy a home, it can add to your tax-advantaged investments later on. It is a gift from the Government of Canada.
Tax Deduction Upon Entry
Like an RRSP, a contribution to an FHSA is deductible against your income. Dollar for dollar. That means if you are deep into a 54% tax bracket, you get a 54% refund. Even at lower incomes, a tax refund is not something to pass up. It gives you more money and less to the government. That can be used to invest or repay debt faster, and it’s money you would not otherwise have. You may not see that refund until you file your income taxes, but it will increase your cash flow at that time.
The Baby Bonus
The tax deduction from an FHSA is even more powerful if you have kids and are collecting the Canada Child Benefit (CCB). The CCB is clawed back when your household income exceeds about $35K (2025). The claw-back rate is highest among lower-income earners and those with more kids.
It is based on net taxable income. So, subtracting FHSA contributions not only saves you on taxes, but also increases your net CCB. Even more cash flow that you would not have otherwise had. The claw-back rate ranges from 3% to 23%, and the cash flow bump from not losing CCB can be substantial.
The Exit: Tax Elimination or Deferral
The money that you invest via an FHSA is allowed to compound without the drag of annual taxes on interest, dividends, or realized capital gains. If you withdraw the money to make a qualified purchase, there is no tax on that either. Put together, you are investing pre-tax money, having it grow tax-free, and taking it out tax-free. That is tax elimination. Basically, a government subsidy.
Even if you do not use the FHSA for a qualified purchase within 15 years, you can transfer it to your RRSP, without triggering tax and without using your normal RRSP room. So, it maintains the tax deferral. You do pay tax on the withdrawal. However, because you had more money growing inside (due to no tax on entry or on investment income each year), that is usually more money after-tax than you would otherwise have had. Even if your tax rate rises a bit in retirement. More commonly, if you have a lower tax rate in retirement due to lower earnings, pension credits, and income-splitting with a spouse, it can save even more tax overall.
Who Can Open an FHSA
Residence & Recency Are What Matter
To qualify for an FHSA, you must not have owned a “qualifying home” in the last 4 calendar years. If you are married or common-law, your spouse cannot have owned a qualifying home either. A qualifying home also includes a home outside of Canada, if it would be considered a qualifying home in Canada. For example, if it is now 2025 and my spouse or I owned a home anywhere in the world for any month of 2021 or a later year, then I would not qualify.
That also means that you may qualify for an FHSA even if it is not your first home. For example, if I previously owned a home but have been renting for the past 5 years, I may qualify if I meet the other criteria.
While a foreign home can disqualify you from opening an FHSA, you must also be a resident of Canada to open an FHSA. You can continue to contribute while a non-resident if you leave. However, you cannot make a tax-free withdrawal to buy a home if you are not a resident of Canada at that time. Further, other countries (such as the US) may tax the growth in an FHSA because they do not recognize it as a tax shelter.
What is a Qualifying Home for opening an FHSA?
The definition of a qualifying home for the purpose of opening an FHSA is any of the following (in any country):
What is a qualifying home for withdrawing from an FHSA?
Importantly, the definition of owning a qualifying home for tax-free withdrawals from an FHSA later is slightly different from the definition at the time of opening the FHSA. You have to use it to buy a home in Canada. Also, as long as you opened the FHSA before you got married, you can withdraw the money to buy a first home, even if your spouse has owned a home in the previous 4 years.
What is the age restriction for opening an FHSA?
To open an FHSA, the owner must be over 18 (or 19 in provinces with a higher age of majority, such as BC, NB, NF, NS, NWT, Nunavut, and Yukon). They must also be under 71 as of December 31st of the year that they open the account.
How to Open an FHSA
An FHSA is an account type. That means it is like the bag that you put your groceries (investments) in. You can open an FHSA at a bank branch, but that may also limit what you can hold inside it. Kind of like buying a grocery bag pre-filled with the store’s choice of groceries. Most commonly, for a bank branch FHSA, that would be just cash as an HISA or investing in the bank’s fee-laden mutual funds. Alternatively, opening an FHSA at a discount brokerage allows you flexibility to hold a variety of investments and choose the best options for your situation.
We use Qtrade as our discount brokerage and helped our kids open their FHSAs when they turned 18. It was simple, and I have made a step-by-step guide to DIY investing using Qtrade. It includes screenshots and “just-in-time” educational material. Those who use my affiliate link get access to Qtrade’s best offers and to priority support regardless of account size (bypassing the $500K investment minimum). I get a small referral fee at no cost to you that helps keep the electrons flowing at Loonie Doctor.
Generally, it is best to have one FHSA per person. This makes it easier to keep track of. If you did open a sub-optimal FHSA and choose a better one, you can have the old FHSA transferred directly to your new FHSA without tax consequences or overcontribution problems. This is done by making a transfer request through your new brokerage/bank. If the old FHSA had proprietary mutual funds, they would be sold and transferred “in cash” (with no tax consequence). Other holdings could be transferred “in kind”.
FHSA Contribution Rules
Who can contribute? Who should get priority?
Once your FHSA account is opened, you can contribute. Actually, anyone can give you money to contribute. This is important for married couples. It is also important for parents planning to gift money for a down payment. If you are married, your spouse can contribute to your FHSA without any tax tangles. The contribution is deductible against the income of the person who owns the account. So, teaming up to fill the higher-earning spouse’s FHSA first makes sense if you cannot do both.
When should you take the tax deduction?
It is also important to realize that you can contribute in the current year and not use the deduction against income until a future year. For example, if I knew my income would rise in a couple of years or that I might have some CCB due to having kids, I might contribute now and deduct it then.
If you are not expecting a big raise or kids in the next few years, delaying also has a cost. You could get the tax refund now when it is worth more to you. So, it is a balance. As a rule of thumb, a tax bracket jump of less than 2-3%/yr of waiting may not be worth it. That 2-3%/yr is roughly the erosion of your buying power due to inflation.
How much contribution room do you get?
When you open an FHSA, you get $8,000 of room. Each calendar year (Jan 1st), you get another $8,000 of room. So, if you are thinking of using an FHSA, getting it opened before Dec 31st gives you an extra $8K compared to waiting a few months. The lifetime maximum is $40K, which you would reach in five calendar years.
A couple would have double the above since each partner could have their own FHSA.
The Price of Procrastination
If you did not use the FHSA contribution room from a previous year, you can make extra contributions to catch up. That is limited to the lesser of $8K/yr or the unused room. For example, if I opened an FHSA last December but only had $3K to contribute at the time. This year, I could contribute up to $13K ($5K unused room from last year plus the new $8K room from this year). If I didn’t have any money this year either, then next year I could put in $16K. That is because the unused $13K exceeds $8K. You could still catch up further the following year – the room is not lost.
If you have a potentially short period between now and when you plan to buy a home, do not delay. Missing a calendar year by delaying account opening means a smaller untaxed pot of money to use. Similarly, if you leave catching up until later, you may not be able to make up for unused contribution room fast enough. This is illustrated below. That does not even account for the years of untaxed compound growth that you would miss by not investing the money sooner.
Last Minute Scambling
You do not “own a home” for the purposes of opening an FHSA until you close on the home. Also, there is no minimum holding time for an FHSA. So, it is possible to open an FHSA between signing the agreement to buy a home and closing. This may be worth it to get the tax deduction, even though there is not enough time to earn much investment income.
The money for the FHSA could come from other funds you have set aside for your down payment. If there is a gift from a family member, put it in the FHSA. If using money from your TFSA, withdraw some and put it into the FHSA. The limiter is usually the amount of FHSA contribution room that you have. Remember, both partners can have an FHSA.
FHSA & Home Buyer’s Plan: Preferably max both. At least double dip.
If you are using the Home Buyer’s Plan to take an interest-free loan from your RRSP, you could take money from that withdrawal and put it into your FHSA. Using the HBP’s plan requires that you have a signed agreement to buy or build a first home that you will occupy within one year. An RRSP owner can use up to $60K from their RRSP without paying tax now, using the HBP. It could come from a personal RRSP. A spouse could use their personal and/or spousal RRSP. Importantly, there must have been enough contributions and growth in the RRSP for over 89 days to fund the HBP withdrawal. So, you cannot leave that bit of planning to the last minute.
If you must choose between RRSP and FHSA contributions while saving for your down payment, using the RRSP could allow you to benefit from both. Make the RRSP contribution and get the tax deduction. Open an FHSA, even if you don’t fund it, to start building contribution room. When there is a signed agreement to buy, withdraw using the HBP to fund the FHSA, and get a second tax deduction.
If you are prioritizing the RRSP with the plan to double-dip, just be sure not to leave more than $16K of unused room in your FHSA. You can only contribute up to $16K/yr to an FHSA, regardless of how much room you have.
Oops! What if you overcontributed to your FHSA?
If you are quick, your brokerage may sometimes cancel the deposit. Otherwise, if you accidentally overcontributed, the penalty is 1%/month. This is one reason it is best to have one FHSA per person. It is easier to keep track of things. If you have made an overcontribution, you can make a designated withdrawal to correct it.
FHSA Withdrawal Rules
When it comes time to use the FHSA money for your purchase, there are some criteria that you must meet to take the money out tax-free. The purchase must be a qualifying home in Canada, as outlined previously. There is no stipulation that all withdrawn money must be used for the down payment. So, some could be directed towards the other costs of buying a new home – like furniture, moving, and closing costs, etc.
Time Window For Purchase
You must not have owned a home in the past 4 years to make a tax-free withdrawal. However, you can have bought the home in the 30 days immediately preceding.
If agreeing to buy or build a home in the future, there is also a time limit. You must have a written agreement with the home’s acquisition date or construction completion date before October 1st of the calendar year following the year of the withdrawal. For example, if I take the money at any time in 2025, I must buy the home or build before October 1, 2026. The written agreement must be in place in 2025 at the time of withdrawal.
You must also occupy or intend to occupy the home as your principal residence within one year of purchase. In other words, you cannot use the FHSA as a tax-free way to buy what you plan to use as a rental or recreational property.
FHSA Withdrawal Paperwork
To request a withdrawal, you must fill out an RC725 form and submit it to your brokerage. They will also give you a T4FHSA tax slip for your personal income tax filing.
Importantly, you cannot cancel an FHSA withdrawal once the request has been made, and you cannot put the money back in unless you have unused room. So, be certain the deal will go through before making the withdrawal request.
Closing Your FHSA
You must close your FHSA the earliest of 15 years of participating, turning 71 years of age, or within a year after your first qualifying withdrawal. If there are residual funds, you should have them transferred directly from your FHSA to your RRSP or RRIF prior to closing the FHSA. You do that by initiating a direct transfer through your brokerage that holds the receiving RRSP/RRIF.
Making the Most of the FHSA
Putting together the details in the preceding sections, here are some tips to make the most of the FHSA.
If you qualify, an FHSA is the most powerful registered account.
Only an FHSA has the opportunity for you to get a tax refund, reduce CCB claw back, get tax-free growth, and take the money out tax-free. That is tax elimination. Plus, a baby bonus, if applicable. Even if you do not use it to buy a home, you can continue to benefit from tax-deferred growth by adding it to your RRSP if not used within 15 years.
If both partners qualify, you could each have an FHSA and the potential to eliminate taxes while building an $80K (plus the tax-free growth) down payment or a combination of down payment and nice furniture.
Prioritize contributing to the higher-income spouse’s FHSA, since they get the largest tax deduction.
If you expect a large income increase or more kids to collect CCB for in the next few years, consider contributing now but carrying the deduction forward to use in one of those juicy years.
When could it make sense to prioritize a TFSA over an FHSA?
If you are in the situation of low income that will rise later and no kids (making the deduction more valuable later), and have to choose between FHSA and TFSA contributions, it could make sense to delay opening the FHSA. The TFSA gives more flexibility for contributions and withdrawals. That may be important when you are early in your financial life. Growing the TFSA early also gives you more room for lifelong tax-free investment, not truncated when you buy a home.
Delaying also extends the time you have to buy a home. However, you would still want to open it at least 5 years before there is any possibility of buying a home to get the full $40K of room. You also want to start filling it at least 2-3 years in advance because of the maximum $16K/yr contribution limit. That money could come from the TFSA that you were building if you don’t have extra money later.
Of course, if you can afford to fund both the TFSA and FHSA, that is even more tax-free growth. The longer it can compound, the better.
If you have a longer timeline and want to choose investments, use a brokerage.
The FHSA is just an account type. If you open it at a bank or credit union, it may just be able to hold cash, GICs, or their mutual funds. An FHSA at a discount brokerage lets you choose your investments. Use whatever discount brokerage you want. I use Qtrade due to the free trades and good customer service. If you use my affiliate link, you get their best deals, priority support, and a warm-fuzzy feeling from supporting this blog (at no cost to you). Which investments to choose depends on your risk tolerance, timeline, and flexibility. More on that in next week’s post.
Open it early, even if you cannot fill it right away. But don’t procrastinate.
You get $8K of room per calendar year, up to a maximum of $40K. So, the earlier you open an FHSA the more room you get. That may matter if your home purchase is potentially in the next five years. You can also only contribute an extra $8K per year to catch up on unused contributions. Again, start contributing as early as you can to minimize the risk of unused room.
Opening an FHSA early may also help if you later marry or enter into a common-law relationship with someone who owns an owner-occupied home. That would prevent you from opening an FHSA, but if you already have one open, you would avoid that issue.
Earlier is better, but you can salvage something on short notice.
There is no minimum holding time for an FHSA, and you could open one before you close on your first home. Even if you only put $8K into an FHSA for a few days and then use it, you could get the tax deduction. Double that for a couple who qualify.
Consider the Home Buyer’s Plan Double Dip.
If you can only contribute to your RRSP or FHSA, consider using your RRSP for some of it, but not to the point where you are more than $16K behind on your FHSA contributions. Contributions to an RRSP over 89 days prior to accessing, may be accessed using the Home Buyer’s Plan when you sign the deal for home purchase. That tax-free loan of up to $60K per person could be taken out and repaid to your RRSP over 15 years. Some of the cash can be used to fill available FHSA room. That gets your the RRSP tax deduction plus the FHSA tax deduction. A satisfying double dip.
If you have enough money to contribute to both the RRSP and the FHSA, then contribute to both. That could give $100K per person plus FHSA growth towards a down payment if maximized.
Think of your children.
If you are planning to help your adult children buy their first home, giving them money to plop into their FHSA is the most tax-advantaged way to do so. Having them open one early (we opened these for our kids when they hit 18) and investing aggressively could mean a massive tax-free down payment for them. Plus, they can use the tax deductions when they have a higher income and/or kids.
One potential downside is that if your kid buys a home and shares it with a spouse, then the money is split if they get divorced. That would also be an issue for other gifts to kids later, used for a matrimonial home, unless you made the gift a formally documented loan to be repaid in the event of divorce or sale of the home.
Another potential downside is if they buy their first home more than 15 years after opening the account (at least age 33+). That could turn the tax-free FHSA withdrawal into a tax-deferred one from their RRSP instead.
If you have to choose between an FHSA and TFSA for your kids, then it can sometimes make sense to prioritize the TFSA. If they have no kids and a very low income that is likely to rise later, then the TFSA offers more flexibility for contributions and withdrawals. It also pushes back the FHSA deadline for usage to an older age. However, I would want to make sure to shift to the FHSA early enough to max it out before a home purchase. That money could even come from the TFSA if needed, but the $16K/yr FHSA contribution limit and opening the FHSA 5 years in advance of buying to get $40K room are still limiters.
Renting, but thinking of moving in with your adult kids?
There is also an interesting planning opportunity if you are renting and may later move in with your adult kids in the next 15 years or before age 71. If you otherwise qualify, you could open and contribute to an FHSA. If you and an adult child buy a new home for you to move in with them as you age, you could access the money tax-free. That would add the complication of you sharing ownership with your cohabitating child. That could become particularly uncomfortable if you also have other kids vying for your estate. So, seek professional advice if ever considering this to accommodate for that in your estate planning.
Great content, Dr. Soth, per usual.
Thanks! This. A pretty cool account with lots of planning opportunities for people (if they qualify).
Mark