First Home SAvings account

A New Path to Homeownership: Canada's First Home Savings Account 

Christie-Leanna Hayes


Saving for a down payment on a home can be a significant financial challenge for many Canadians. Recognizing this, the government of Canada introduced the First Home Savings Account (FHSA) as a means to help individuals and families save for their first home. In this article, we will explore what the FHSA is, how it works, and the benefits it offers to aspiring homeowners.


The First Home Savings Account is a specialized savings account designed to assist Canadians in saving for their first home. The account was introduced April 1, 2023 as part of the federal government's efforts to address housing affordability and support first-time homebuyers.


The FHSA operates similarly to a regular savings account, but with specific features tailored to homebuyers. Individuals aged 18 and older can open an FHSA at a participating financial institution. The account allows for tax-free savings, meaning any interest, dividends or gains earned or withdrawals made for a qualifying home purchase are not subject to income tax. Similar to a Registered Retirement Saving Plan (RRSP), contributions into a FHSA are tax deductible.


To open an FHSA, the individual must not have owned a house in the previous four years. The FHSA can remain open for a maximum of 15 years; however, must be closed December 31st in the year that the individual turns 71. It is important to note that the house must be a principal residence to qualify.


Contributions and Withdrawals

Account holders can contribute up to $8,000 annually to their FHSA, with a lifetime contribution limit of $40,000. Individuals currently have 5 years to fund the account. Contributions can be made in cash or through eligible investments, such as mutual funds or guaranteed investment certificates (GICs). It's important to note that contributions are tax-deductible.


Qualifying withdrawals from the FHSA can be made tax-free for the purpose of purchasing a qualifying home. The funds can be used for a down payment, closing costs, building cost, or other related expenses. Non-qualifying withdrawals are received as taxable income. It is important to note that contribution room does not accumulate, unlike a TFSA. If an individual opens a FHSA in 2024, they will not receive contribution room for 2023; as an example. Those individuals opening FHSA’s will see their contributions and withdrawals on their Notice of Assessment from the CRA.


Should the individual not purchase a qualifying home, the funds within the FHSA can be transferred over to a RRSP or a RRIF on a tax-free basis. It is crucial to emphasize that a transfer from the FHSA to a RRSP, will not affect one’s RRSP contribution room. 


Individuals can combine the Home Buyer’s Plan (HBP) with  the FHSA for additional funds for a down payment on a qualifying home. The HBP does require the funds to be paid back into ones RRSP over a 15 year period; however funds from a FHSA do not need to be paid back. Unlike RRSP’s spousal contributions are not allowed into a FHSA; however spouses can gift each other funds to contribute into their FHSA’s. This also includes parents gifting funds to their adult children for contributions. One can hold multiple FHSA’s, however the participation period is based on when the first FHSA is opened.


Benefits of the First Home Savings Account.

1. Tax Advantages: The FHSA offers tax-free growth on savings and tax-free withdrawals for a qualifying home purchase. This can significantly boost the savings potential for first-time homebuyers.


2. Flexibility: The account provides flexibility in terms of contribution amounts and investment options. Individuals can choose how much they want to contribute annually and can invest their savings in eligible investment vehicles.


3. Long-Term Savings: The FHSA encourages long-term savings for homeownership. By setting aside funds specifically for a home purchase, individuals can stay focused on their goal and avoid dipping into their savings for other purposes.


4. Potential for Higher Returns: Depending on the investment options chosen, the FHSA may offer the potential for higher returns compared to traditional savings accounts. This can help individuals grow their savings more effectively over time.


Canada's First Home Savings Account is a valuable tool for aspiring homeowners, providing tax advantages and a structured approach to saving for a first home. By taking advantage of this specialized savings account, Canadians can enhance their ability to achieve their dream of homeownership. If you are considering purchasing your first home, it is worth exploring the FHSA and consulting with your financial advisor to determine if it aligns with your financial goals and needs.