FHSA Facts and Fiction: Save For Your First Home in Canada

The First Home Savings Account (FHSA) is a new financial tool designed to help Canadians save for their first home. Introduced in 2023, this account combines some of the best features of RRSPs and TFSAs, offering a unique opportunity for aspiring homeowners to build their down payment more efficiently.

This article presents 14 facts about the FHSA that every potential first-time homebuyer should know. From contribution limits and tax benefits to withdrawal rules and investment options, I discuss essential information to help you understand how this account works and whether it’s right for you.

What is the FHSA?

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The First Home Savings Account was introduced by the Canadian government in 2023. It’s designed to help Canadians save money to buy their first home. This account combines features from both RRSPs and TFSAs, making it a powerful tool for home savings.

Annual Contribution Limit

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You can contribute up to $8,000 per year to your FHSA and up to $40,000 lifetime. The government sets this limit, which may change in the future. It’s important to keep track of your contributions to avoid exceeding this limit and incurring penalties.

Lifetime Contribution Limit

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The total amount you can contribute to an FHSA over your lifetime is $40,000. Once you reach this limit, you can’t add any more money to the account, even if you haven’t used it to buy a home yet.

Tax Deductible Contributions

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When you put money into your FHSA, you can deduct that amount from your taxable income for the year. This works like RRSP contributions and can lower your tax bill or increase your tax refund.

Tax-Free Growth

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Any money your investments earn inside the FHSA, such as interest, dividends, or capital gains, grows tax-free. You don’t have to pay tax on this growth, even when you take the money out to buy a home.

Tax-Free Withdrawals for a Home Purchase

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When you use the money in your FHSA to buy your first home, you don’t have to pay any tax on the amount you withdraw. This includes both your contributions and any growth your investments have earned.

Age Limits

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You must be at least 18 years old to open an FHSA. You can’t contribute to the account after December 31 of the year you turn 71. This gives you plenty of time to save, but it’s good to start early if you can.

15-Year Time Limit

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You can keep your FHSA open for up to 15 years from the date you first open it. After this time, you must close the account, even if you haven’t used it to buy a home yet.

First-Time Home Buyer Requirement

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To use an FHSA, you must be a first-time home buyer. This means you haven’t owned a home in the current year or the previous four calendar years. If you’ve owned a home before, you might still qualify if enough time has passed.

Carry Forward of Contribution Room

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If you don’t use all of your $8,000 contribution room in one year, you can carry forward up to $8,000 to the following year. This means you could potentially contribute up to $16,000 in a single year if you didn’t contribute anything the year before.

Multiple FHSA Accounts Allowed

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You can have more than one FHSA, but your total contributions across all accounts can’t go over your annual or lifetime limits. Having multiple accounts might help you compare different investment options.

Investment Options

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You can invest your FHSA money in a variety of ways, similar to a TFSA or RRSP. This includes savings accounts, GICs, stocks, bonds, and mutual funds. You can choose investments that match your risk tolerance and time frame for buying a home.

Transfers to RRSP

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If you decide not to use your FHSA to buy a home or don’t use all the money, you can transfer the funds to your RRSP without affecting your RRSP contribution room. This transfer must be done before December 31 of the year you turn 71.

FHSA and Home Buyers’ Plan

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You can’t use both the FHSA and the Home Buyers’ Plan (HBP) to buy the same home. The HBP lets you borrow from your RRSP to buy a house, but you have to pay it back. With the FHSA, you don’t have to pay the money back.

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Joy Fadogba

Joy Fadogba is a passionate writer who has spent over a decade exploring and writing about lifestyle topics. With a fondness for quotes and the little details that make life extraordinary, she writes content that not only entertains but also enriches the lives of those who read her blogs. You can find her writing on Mastermind Quotes and on her personal blog. When she is not writing, she is reading a book, gardening, or travelling.