The First Home Savings Account (FHSA)

Damien Burleigh, CFP®, CLU® - Analyst, Client Needs

Housing affordability in Canada has been a hot topic for many years, and in this year's budget, the federal government proposed several measures aimed at making home ownership more accessible. One of the proposals is a new tax-free First Home Savings Account (FHSA). The purpose of this account is to encourage first-time buyers to save towards the purchase of a home.

Starting in 2023, eligible contributors will be able to contribute up to $8,000 per year to the First Home Savings Account (FHSA), up to a lifetime maximum of $40,000.

Criteria to open an FHSA

To be eligible to open an FHSA, a contributor must: • Be a resident of Canada; • Be at least 18 years old; and • Not lived in a home owned by the contributor in the year that the account is opened, or the previous four years.

Making contributions to the account

Contributions to the plan will be tax deductible (like RRSP contributions), and growth inside an FHSA will be tax deferred (similar to RRSP and TFSA earnings). Funds withdrawn to use toward the purchase of a home are not taxed (like a TFSA). If in any year a contributor does not contribute the full $8,000 annual maximum, the unused contribution room does not carry forward to future years (unlike an RRSP and TFSA). Account holders can hold more than one FHSA account, but the annual and lifetime limits are per person, not per account.

Using the funds to purchase a home

Account holders will have 15 years from account opening to use the funds in the FHSA towards the purchase of a home. If two people are purchasing a home together, both may use their own FHSA funds towards the purchase. After making a tax-free withdrawal towards the purchase of a home, the account must be closed within one year, and an FHSA cannot be opened in the future. Withdrawals for any purpose other than purchasing a first home will be fully taxable in the year of withdrawal.

If funds contributed to an FHSA are not used within 15 years from account opening, the account holder will have the option to transfer the accumulated funds into their RRSP/RRIF, even if they don't have contribution room. Transfers to an RRSP/RRIF are not taxable upon transfer, but withdrawals from the plans are taxable as income upon withdrawal. If funds are not used or transferred after 15 years, the account holder must withdraw the funds as taxable income and close the account.

How do they compare?

When it comes to first-time homebuyers, there are options to help you save.

Below is a detailed comparison between a first-time homebuyer's options.

first-time homebuyer's options
	First Home Savings Account	RRSP Homebuyers' Plan*	Tax Free Savings Account**
Annual contribution limit	$8,000	*RRSP contribution limit	$6,000
Contributions tax deductible	Yes	Yes	No
Limit toward first home purchase	$40,000	$35,000	Entire Balance
Taxable Withdrawal if used for home purchase?	No	No	No
Taxable withdrawal if used for other purpose?	Yes	Cannot withdraw from RRSP under HBP for any purpose other than home purchase	No
Repayment	Not required	Within 15 years	Not Required
Contribution room carryforward	No	RRSP contribution room, Yes	Yes

Awaiting royal assent

The FHSA was proposed in the 2022 federal budget, which has not yet received final approval. Certain details, such as qualifying investments and naming beneficiaries on this account remain unclear. We will share this information as it becomes available.