Last updated: March 3, 2023

What’s an FHSA?

The Tax-Free First Home Savings Account (FHSA) is a registered investment account that allows Canadian residents to contribute up to $40,000 (with an annual contribution limit of $8,000) to buy their first home in Canada.

You can hold various investments within an FHSA – including mutual funds and segregated funds. And, any investment growth and withdrawals from a FHSA will be tax-free. This is provided you use your withdrawals to buy a qualifying home.A qualifying home is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family, semi-detached, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings all qualify. A share in a co-operative housing corporation also qualifies if it entitles you to possess and gives you an equity interest in a housing unit located in Canada. Connect with an advisor for more information.

Plus, any contributions you make to an FHSA will be tax-deductible. This means you can claim a deduction and lower your taxable income, which may reduce the amount of tax you’ll have to pay overall.

Who can open an FHSA?

The FHSA will launch on April 2023. Where available, you can open an FHSA so long as:

  • you’re a Canadian resident,
  • you’re at least 18 years* of age or older,
  • you’re under the age of 71, and
  • in the current calendar year or in the previous four calendar years, you or your spouse or common-law partner haven’t lived in a home that either of you have owned.

*If you live in a province where the age of majority is 19, then you must be 19 years of age or older to open an account. 

FAQs: Opening an FHSA

Not if you lived in the home in the current year or any of the four preceding years. You wouldn’t be a first-time home buyer.

Not if you lived in their home in the current year or any of the four preceding years. You wouldn’t be a first-time home buyer.

Yes, so long as you didn’t live in the home in the current year or any of the four preceding years.

FHSA contributions

Once you’ve opened an FHSA, you’re allowed to contribute up to a lifetime limit of $40,000, with an annual contribution limit of $8,000. Unused FHSA contribution room may be carried forward. However, an FHSA’s carry forward is different from an RRSP’s. Under an RRSP, your right to carry forward unused contribution room accumulates without limit (until you must convert your RRSP to a RRIF or annuity at the end of the year you turn age 71). Instead, the maximum FHSA contribution room you can carry forward to a subsequent year is $8,000.

It’s also important to know that an FHSA is not an extension of your tax-free savings account (TFSA). FHSAs and TFSAs are two separate accounts. So, you’ll have separate contribution rooms for your FHSA and TFSA. Don’t forget to keep track of your contribution room for all your registered accounts by logging into your CRA account.

FAQs on FHSA contributions

Yes. Like an RRSP you can contribute (within your limits) and claim the deduction in a later year. You may choose this if you expect your income to increase significantly in a future year.

The federal government applies a 1% penalty per month on any contribution amounts over your annual FHSA limit. You can’t deduct overcontributions in the year you make the overcontribution. However, you can deduct it in the following year if you have new unused FHSA contribution room that covers the overcontribution. The 1% penalty ceases when you either withdraw the overcontribution or you earn sufficient contribution room the following year.

For example, let’s assume you open an FHSA and contribute $10,000 in 2023. You have a $2,000 overcontribution for 2023. For 2023, you can deduct $8,000 of that $10,000 contributed. But for the 2023 tax year, you can’t deduct the $2,000 you over-contributed. A 1% penalty tax applies for each month you retain the overcontribution in the plan. On January 1, 2024, you receive additional contribution room of $8,000 for 2024. You can deduct the $2,000 overcontribution in 2024 and contribute and deduct up to $6,000 more during the year. The 1% penalty ceases on January 1, 2024. Note you won’t receive additional contribution room if you’ve surpassed your lifetime limit ($40,000).

Parents can’t contribute directly to their adult child’s FHSA. But they can gift the money to their adult children, who can then use it to contribute to their FHSA. Their adult children then get a tax deduction for those contributions and their qualifying withdrawals will be tax-free. Some financial institutions may require a letter confirming that the parents gifted a certain amount of money and don’t require any repayment from their adult children.

No. An exemption from the attribution rule applies to funds you gift to your spouse to contribute to their FHSA. There’s generally no attribution on funds gifted to an adult child.

FHSA withdrawals

To make a tax-free withdrawal (also called a “qualifying withdrawalA qualifying withdrawal from an FHSA means you're making a withdrawal for the purpose of buying a home.”) from your FHSA, you must meet the following conditions:

  • Your new home must be your main residence within one year after buying or building it. You’ll have to complete the documentation indicating the location of the qualifying home and your intention to live there as your principal residence within one year of purchase.
  • You must be a first-time home buyer when you make a withdrawal or within 30 days of moving into a qualifying home. Being a first-time homeowner means you must not have lived in a home you or your spouse or common-law partner own for the period beginning in the four previous calendar years prior to the withdrawal.*
  • You’ll need a written agreement to buy or build a qualifying home before Oct. 1 of the year following the year of the withdrawal. This is provided the qualifying home wasn’t bought more than 30 days before the withdrawal.

If you meet the government’s conditions, you can withdraw as much as you’d like from your FHSA on a tax-free basis – either as a single withdrawal or a series of withdrawals. It’s also important to note that you must close your account by the end of the year following the year your first qualifying withdrawal is made. This means that you’ll have to make all your withdrawals within that time period.

For example, if you made your first withdrawal in 2023, then you’ll have to make all your withdrawals and close your FHSA by 2024. However, this isn’t the only factor that can affect you when you have to make withdrawals. Connect with an advisor to discuss your unique situation.

If you can’t meet these conditions, then you can still make “non-qualifying” withdrawals from your FHSA. These are withdrawals that are subject to a withholding tax. They’ll also be included in your taxable income in the year of the withdrawal.

FAQs on FHSA withdrawals

No. Unlike a TFSA, withdrawals from an FHSA don’t reinstate contribution or deduction room the following year.

Yes. However, it wouldn’t be a tax-free qualifying withdrawal. You would include the withdrawal in your income and pay tax at your marginal tax rate. Or, you can transfer unused amounts to your Registered Retirement Savings Plan (RRSP)/Registered Retirement Income Fund (RRIF) on a tax-deferred basis. Connect with an advisor for more detailed information.

No. However, once you make your first qualifying withdrawal, you must withdraw or transfer to your RRSP or RRIF all remaining funds by December 31 of the following year. To be tax-free, each withdrawal needs to meet the qualifying withdrawal conditions above.

No, you don’t have to repay funds into your FHSA after you make qualifying withdrawals to buy a qualifying home.

Connect with an advisor.  

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FHSAs and RRSPs

Can I transfer an RRSP to an FHSA?

Yes, you can transfer funds from your RRSP to your FHSA, so long as you have available contribution room in your FHSA. However, it’s important to note that you can’t claim the amount transferred as a deduction on your tax return under the FHSA plan. Also, transfers from an RRSP to an FHSA don’t reinstate your RRSP contribution room. If you have available cash flow, consider contributing to the FHSA first rather than transferring money from your RRSP. Connect with an advisor to discuss your unique situation. 

Is there a spousal FHSA like the spousal RRSP?

No. Only the FHSA holder can make and deduct contributions to their FHSA.

How is an FHSA different from an RRSP?

Unlike an RRSP, an FHSA lets you make tax-free qualifying withdrawals. 

TFSAs and FHSAs

Can I transfer funds from a TFSA to an FHSA?

Yes, you can withdraw money from your TFSA, tax-free, and contribute it to your FHSA and get a tax deduction. This is provided you have available contribution room in your FHSA. Withdrawals from your TFSA in the current year regenerate TFSA contribution room the following January 1. Connect with an advisor for more detailed information. 

How is an FHSA different from a TFSA?

Unlike the TFSA, you only accumulate contribution room if you open an FHSA account.

FHSA vs Home Buyers’ Plan (HBP)

How is the FHSA different from the HBP?

The main difference between the FHSA and the Home Buyers’ Plan (HBP) is that the HBP requires you to repay your withdrawn funds, whereas the FHSA doesn’t require any repayment.

The HBP lets you withdraw up to $35,000 from your RRSP to buy or build your first home in Canada. When you withdraw these funds, it’s like you’re borrowing from your RRSP. So you’re expected to pay the money back within a specific period of time. Otherwise, you’ll have to pay taxes.

With an FHSA, your contributions are tax-deductible and your qualifying withdrawals are tax-free when you buy a qualifying home. You’re not borrowing any money, so there’s nothing to pay back.

Can I use the FHSA and HBP to buy the same home?

Yes, you can use both to buy the same home. The government initially said you couldn’t combine the FHSA and HBP on the purchase of the same qualifying home. However, revised legislation allows you to use both the FHSA and HBP for the same qualifying home. 

Can my spouse and I both open an FHSA to buy the same home?

Yes, you and your spouse can each open your own individual FHSA. You can then use those two FHSA accounts to buy the same qualifying home so long as you’re both first-time homebuyers. 

FHAs for non-residents of Canada

What happens if I become a non-resident of Canada?

Only Canadian residents can open an FHSA. If you become non-resident after opening an FHSA, you can retain and continue contributions subject to contribution limits. However, your financial institution’s compliance rules may limit transactions for non-residents. Note foreign jurisdictions may tax investment returns under their tax laws.

You can’t make a tax-free qualifying withdrawal as a non-resident. Withholding tax applies to any withdrawal made by a non-resident at 25%. If Canada has a tax treaty with the country of your residence, this withholding tax may be reduced.

If you’re planning on becoming a non-resident of Canada, please consult with a tax advisor.

Can a Canadian resident who’s a U.S. taxpayer open an FHSA?

Like the TFSA, the U.S. tax rules doesn’t recognize the tax-free status of the FHSA. This may result in double-tax problems. Consult with a tax advisor for more detailed information. 

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This page is meant to only provide general information. Sun Life Assurance Company of Canada does not provide legal, accounting or tax advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.