Fund Your First Home Purchase

Last Updated: July 4th 2023


The government of Canada introduced legislation that went live April 1st of this year. The new financial account is designed to provide some relief for would-be first time home buyers. The First Home Savings Account has unique features to help qualified Canadians save for their first home.

Why Is This Change Being Made?

The FHSA essentially takes the best of both worlds from a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Like a RSP, there is a tax deduction you can use to lower your taxable income for your contributions. Qualifying withdrawals to purchase your first home would be non-taxable similar to a TFSA and the funds do not need to be paid back, which is a major difference from the RSP Home Buyers’ Plan.

Who Qualifies?

A qualifying individual is considered a first-time home buyer if they (and/or their spouse or common law partner) have not owned a home in the same calendar year of opening the FHSA account or in the previous four years prior to the FHSA account opening. Additionally, the person must meet these conditions:

  • At least 18 years old
  • A Canadian resident
  • A first-time home buyer
  • Must be to purchase a primary residence and not investment property.

In simpler words, if you never owned a home but live with a spouse in a home owned by them (wholly or jointly), then you are not a first-time home buyer for the purpose of opening an FHSA. However, if your kids above the age of majority still live with you in a home that you own, that doesn’t disqualify them from being considered a first-time home buyer and opening an FHSA. They are also not disqualified if they live in a rental. While you cannot open an FHSA for them, you can gift them money that they can contribute to an FHSA that they open themselves. In this scenario, the adult child would get the tax deduction, not the parent.


There is a lifetime contribution limit of $40,000, and an annual contribution limit of $8,000 in any year, including 2023. As is the case with RSPs and TFSAs, you can hold multiple FHSAs but the cumulative total cannot be exceeded. If you do over contribute, generally you have to pay a tax of 1% per month on the amount exceeded in that month. You will continue to pay the monthly 1% tax until the excess FHSA amount is eliminated.

Your excess FHSA amount will be reduced or eliminated by your new FHSA participation room (on January 1 of the following year), or by taking out the overcontribution from your FHSAs. Another page from the TFSA and RSP playbook is carry forward room. You can carry forward any unused FHSA contribution room from the prior years up to a maximum of $8,000 (subject to your lifetime contribution limit of $40,000). This means that if you contribute less than $8,000 in a particular year, you may contribute the unused amount in a subsequent year in addition to the $8,000 annual contribution limit for as long as you have the account.

For example, if you contribute $7,000 to your FHSA this year, you would be allowed to contribute $9,000 next year ($8,000 plus the remaining $1,000 from the previous year). Unlike RRSPs, contributions made within the first 60 days of a calendar year cannot be attributed to the previous tax year. FHSA contributions can be claimed as a deduction against all sources of taxable income. FHSA Participation Room will be reported on your Notice of Assessment.

Direct vs. Indirect Transfers

While transfers from an RRSP to an FHSA are generally tax deferred, this treatment is only the case where the transfer is a direct transfer. In other words, the money must flow directly from the RRSP to the FHSA. If the account holder withdraws money from an RRSP (say, to their bank or investment account) and subsequently contributes that money to their FHSA, the withdrawal from the RRSP would be taxable.

To prevent an income inclusion of the amount from the RRSP, account holders must fill out RC720, Transfer from your RRSP to your FHSA and give it to their financial institution. Note that transfers from a RRIF are not permitted. Furthermore, a transfer from an RRSP is only tax deferred up to the account holder’s FHSA Participation Room, with any excess amount being taxable income in the year of transfer.

Transfers are also possible from one FHSA account to a second FHSA account belonging to the same holder. However, for this transfer to be on a tax-deferred basis, the transfer must once again be a direct transfer and a form must be filed. As of press time, this form is not yet available. If the FHSA account holder decides to not make a qualifying withdrawal, they can transfer the balance of their FHSA to an RRSP or RRIF. This transfer can be on a tax deferred basis, but only if it is a direct transfer, and only if a different form (also not yet available)vis filed with the financial institution.


Qualifying withdrawals to buy a home are not taxable as long as you are a first-time home buyer when you make the withdrawal. There is an exception to allow individuals to make qualifying withdrawals within 30 days of moving into a qualifying home. A contract must be in place to buy or build a qualifying home before October 1 of the year following the year of withdrawal. For example, if you withdraw in 2025, you must buy or build your house by October 1st 2026.

You must intend to occupy the home as a principal place of residence within one year after buying or building it. For a property to qualify it must be a housing unit located in Canada. Any funds left over after making a qualifying withdrawal can be redirected to your RRSP or a Registered Retirement Income Fund (RRIF), without a penalty and is considered tax deferred, as long as you transfer the remaining funds by December 31 of the following year you withdrew, since the plan stops being an FHSA at that time.

Transfers do not reduce or limit your available RRSP room. If you withdraw FHSA savings as a non-qualifying withdrawal, you must include the amount as income for the year of the withdrawal and tax will be withheld similar to a RRSP. Unlike a TFSA, withdrawals and transfers cannot be added into FHSA contribution limits the following year.

Excess contributions to an FHSA cannot be withdrawn as a qualifying withdrawal. These amounts can be withdrawn as designated withdrawals instead. Since excess contributions to an FHSA do not generate a tax deduction, designated withdrawals are also not taxable.

Becoming A Non-Resident

Only Canadian residents can open an FHSA. If they become a non-resident of Canada after opening the FHSA, the account can be maintained during their period of non-residency. However, a qualifying withdrawal to buy or build a home cannot be made while a non-resident of Canada.

The non-resident could make a taxable (non qualifying) withdrawal from the FHSA. This withdrawal would be subject to withholding tax. The default withholding tax rate is 25% of the withdrawal, but this rate may be reduced by a Tax Treaty between Canada and the non-residents’ country of residency. Canadian residents who are planning on becoming non-residents of Canada should seek qualified tax and legal advice about their FHSA prior to their departure.

What Can You Invest In?

The same things you can and cannot invest in with a TFSA or RSP applies to your FHSA. Cash, Guaranteed Investment Certificates (GICs), stocks, options, bonds, ETFs are all approved. Art and other collectibles, commodities, NFTs, crypto, are all a no go. Please note this is not an exhaustive list so consult with a financial professional before making an investment in your FHSA.

FHSA And The Home Buyer’s Plan

The FHSA may seem like a duplication given that RRSPs have a Home Buyer’s Plan (HBP) built into them. However, participation in one doesn’t disqualify someone from participating in the other. On a combined basis, a person who qualifies for both could make $75,000 of tax deductible savings toward a first home, and a couple who each qualified for both could make $150,000 in combined tax-deductible savings.

There are some key similarities and differences between the FHSA and HBP to understand. Here is a summary of some of the main considerations:

• While FHSA withdrawals can be tax-free and do not have to be repaid to the plan, HBP withdrawals would become taxable if not repaid to the RRSP on time. Money contributed to an RRSP will always eventually become taxable, even if withdrawn under the HBP and then repaid. For this reason, the HBP can be used to fund a first home purchase on a tax deferred basis, whereas the FHSA can be used to fund the purchase on a tax free basis.
• Investment income earned inside an RRSP and used to fund a first home purchase via the HBP will eventually be fully taxed. In comparison, investment income earned inside an FHSA and used to fund a first home purchase would generally be tax-free. First Home Savings Account (FHSA) 
• RRSP Deduction Room and therefore access to the HBP accumulates each year based on your earned income for the prior year, whether you have an RRSP account open or not. FHSA Participation Room is not connected to your income, and only begins accumulating once the account is open.
• Both the FHSA and HBP have a 15-year period associated with them, but they work differently. FHSAs have a maximum participation period of 15 years from the time the account is opened (and less in some situations) regardless of when contributions start. This allows investment income to accumulate for a maximum of 15 years before the account must be closed. With an RRSP, contributions can grow in the account tax-deferred for more than 15-years, but once withdrawn under the HBP, must be repaid within 15 years to not become taxable.

Last Points

The FHSA must be closed by December 31 of the year you turn age 71, by December 31 of the 15th anniversary of first opening the account if the funds have not been used to purchase a qualifying home, or by December 31 of the year following the year of the qualifying withdrawal

A FHSA is a great account to tax efficiently save for one of the most exciting purchases you’ll ever make. If you want to learn other ways to maximize tax strategy, check out our Taxes page for more information.