April 16, 2023

An introduction to the First Home Savings Account (FHSA)

An introduction to the First Home Savings Account (FHSA)

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Buying a home is a dream for many Canadians, but the process of saving for a down payment can be challenging, especially for first-time homebuyers. Fortunately, there is a new  financial tool available to help Canadians save for their first home – a First Home Savings Account (FHSA). 

A First Home Savings Account (FHSA) is a savings account from the Federal Government that is set to be available for Canadians in 2023. The account allows individuals to save money towards the down payment on their first home while earning interest tax-free and lowering their taxes. In this blog post we will cover the details you need to know about this new financial tool that can help you save thousands!

Eligibility for the First Home Savings Account

To be eligible for the FHSA, you must be a Canadian resident who is at least 18 years old. You cannot own a home in the calendar year that the account is opened or in the four years preceding that. The account is meant for primary residences and not investment or leisure properties. You can have more than one FHSA, but you cannot exceed your yearly or total contribution limit.

Contribution rules for the First Home Savings Account

The FHSA works similarly to an RRSP or TFSA, with a few key differences. The contribution limit is $8,000 per year, with a maximum lifetime contribution limit of $40,000. Unused contribution room in the account can be carried forward. Capital gains or interest earned in the account is tax-free. Contributions made to the account can lower your taxable income by an equal amount.

Withdrawal requirements for the First Home Savings Account

Withdrawals from the FHSA can be made tax-free if the withdrawal is for the purchase of a first home.You must have a written agreement to buy or build a qualifying home located in Canada before October 1 of the year following the year of withdrawal. Withdrawals not related to a first-time home purchase will be considered taxable income and you must also intend to occupy the qualifying home as your principal place of residence within one year of buying or building it.. FHSA withdrawals do not need to be paid back. You cannot use both the Home Buyer’s Plan from an RRSP and FHSA for the same home purchase.

Other plans and programs for home buyers in Canada

In addition to the FHSA, there are other programs and plans available to home buyers in Canada. The Home Buyers’ Plan (HBP) is a program that allows home buyers to borrow up to $35,000 from their RRSPs towards the purchase of their first home. The First Time Home Buyer Incentive (FTHBI) provides eligible buyers with 5% or 10% off the price of the home they’re buying. The Home Buyer’s Tax Credit (HBTC) is a non-refundable tax credit that provides buyers with $10,000 for the purchase of an existing home.

Is there a penalty if my FHSA contributions exceed the maximum?

Yes. Just like with tax-free savings accounts (TFSA), a 1% tax on over-contributions to an FHSA would apply for each month.

What happens if you don’t purchase a home?

If you decide not to purchase a qualifying home, there are still options for utilizing any savings you may have accumulated in your FHSA. One possibility is to transfer the funds to a Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF) on a non-taxable transfer basis, as long as you follow the applicable rules. However, it’s important to note that these funds will still be taxed upon withdrawal. If you choose to withdraw the funds without transferring them, they will also be subject to taxes. So, while not purchasing a home doesn’t mean the end of your FHSA savings, it’s important to consider the potential tax implications of how you choose to use those funds.


If you’re considering buying your first home, or already in the process of doing so, a First Home Savings Account (FHSA) can be a fantastic tool to help you reach your goal while reaping the many benefits it provides. Some of these advantages include tax-deductible contributions, tax-free earnings, and the flexibility to use the funds in your account for any expenses related to your home purchase, whenever you need them. 

Don’t let the high cost of homeownership hold you back from achieving your dream. Whether you’re ready to make the move now or in the future, researching your options and consulting with a mortgage broker can help you better understand your financial situation, available financial tools and make informed decisions.

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