If you've recently arrived in Canada and dream of owning your own home one day, there's a very handy tool many people still don't know about: the FHSA (First Home Savings Account). This account is designed for people saving for a first home, and the best part is that you pay no tax either when you put the money in or when you take it out to buy a home. Let's walk through it together, simply and without jargon.
What exactly is an FHSA?
The FHSA is a government-registered account that combines the two benefits of a TFSA and an RRSP:
- The money you put in each year is deducted from your taxable income (like an RRSP). So you pay less tax that same year.
- When you withdraw the money to buy your first home, you pay no tax on it or on its growth (like a TFSA).
This combination makes the FHSA almost unbeatable for buying a first home.
How much can you put in? The limits
Remember two numbers:
- Annual limit: $8,000
- Lifetime limit of the account: $40,000
If in one year you don't put in the full $8,000, the remainder carries forward to the next year — but only up to $8,000 of carried-forward room can build up. So at best, in a single year you can put in $16,000 ($8,000 for this year + $8,000 carried forward).
An important note about timing
Unlike an RRSP, the FHSA has no 60-day grace period at the start of the new year. That means for this year's savings to affect this year's taxes, you must have contributed by December 31. So open the account this very year, even if for now you're only putting in a little — because your $8,000 of room starts in the year you open the account.
Who can open one?
- You must be a resident of Canada (a newcomer with residency status usually qualifies too).
- Between 18 (or the legal age in your province) and 71 years old.
- You must count as a first-time home buyer. That means in the year you open the account and in the four years before it, neither you nor your spouse owned a home you lived in.
The account can stay open for a maximum of 15 years.
Use the FHSA and the HBP together
The good news is that you can combine the FHSA with the Home Buyers' Plan (HBP). Under the HBP you can withdraw up to $60,000 from your RRSP (which you do have to pay back into the RRSP over 15 years). But an FHSA withdrawal has no repayment at all.
If you use both to the full, on your own you can build up to around $100,000 toward a down payment — and for a couple that figure doubles.
Where does this money fit into buying a home?
FHSA money is usually used for the down payment. Keep in mind the general rules for buying a home in Canada:
- Minimum down payment: 5% on the first $500,000 and 10% on the amount above that.
- If your down payment is under 20%, you have to get mortgage insurance (CMHC), and its cost is added onto the mortgage.
- The bank measures you with a stress test: you have to prove you can afford the higher of "your contract rate + 2%" or the benchmark rate.
The bigger your down payment, the smaller the mortgage and the lighter the payments — and this is where the FHSA really helps you.
Frequently asked questions
I'm a newcomer and don't have a steady job yet. Is the FHSA useful for me?
Yes. Even if your income is low this year, opening the account starts your savings room, and later when your income grows, the tax deduction becomes worth more.
What happens to the money if I end up not buying a home?
If you don't buy a home, you can transfer the balance tax-free into your own RRSP. So the money isn't lost.
Is the FHSA better, or the HBP?
You don't have to choose — you can use both together for one home. Because the FHSA has no repayment, it's usually the first priority.
How many FHSAs can I have?
You can have more than one account, but the $8,000 and $40,000 limits apply to the total across all of them.
Reminder: this article is for educational purposes only and is not personal financial advice; for your final decision, be sure to consult a professional.
Your next step
Want to see what kind of home your savings can afford and what the monthly payment would be? Visit our free mortgage calculator; right there you can also book a free consultation with a Farsi-speaking specialist who'll guide you step by step. The road to owning a home starts with this one small step.
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