The First Home Savings Account (FHSA) is a Canadian registered savings plan designed to help individuals save for their first home. It combines features of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP), offering tax advantages for those aiming to purchase their first property.
Key Features:
- Tax-Free Growth: Investment earnings within an FHSA are tax-free, similar to a TFSA.
- Tax-Deductible Contributions: Contributions to an FHSA can be deducted from your taxable income, like an RRSP.
- Tax-Free Withdrawals for a First Home: Withdrawals for the purchase of your first home are not taxed.
Who is Eligible?
To open an FHSA, you must:
- Be a Canadian resident.
- Be 18 years of age or older (or the age of majority in your province).
- Be a first-time homebuyer (not have owned a home in the current year or any of the four previous years).
Contribution Rules
- Annual Contribution Limit: $8,000 per year.
- Lifetime Contribution Limit: $40,000.
- Carry-Forward Unused Contributions: Unused contribution room from a year can be carried forward, but only up to $8,000 per year.
- Spousal Contributions: FHSA accounts are individual; there are no spousal contributions.
How to Use FHSA Funds
- Funds must be used to purchase a qualifying first home in Canada.
- You can combine the FHSA withdrawal with the Home Buyers’ Plan (HBP), allowing for an additional $35,000 withdrawal from an RRSP (repayable within 15 years).
What Happens If You Don’t Buy a Home?
If you decide not to purchase a home, you can:
- Transfer the unused FHSA funds to your RRSP or RRIF tax-free.
- Withdraw the funds, but withdrawals unrelated to a home purchase will be taxed as income.
How to Open an FHSA
- Contact your bank, credit union, or investment firm.
- Provide necessary documentation, such as proof of identity and residency.
- Start contributing up to the annual and lifetime limits.
FHSA vs. Other Savings Options
| Feature | FHSA | TFSA | RRSP |
|---|---|---|---|
| Tax-Deductible? | Yes | No | Yes |
| Tax-Free Withdrawals? | Yes (for first home only) | Yes | No |
| Contribution Limits | $8,000/year; $40,000 lifetime | Annual limit varies | 18% of income (up to max) |
| Primary Goal | First home | General savings | Retirement savings |
Tips for Maximizing Your FHSA
- Start Early: Maximize contributions to benefit from tax-free growth.
- Invest Wisely: Consider investing in a diversified portfolio for long-term growth.
- Combine with Other Savings: Use it alongside an RRSP or TFSA for greater flexibility.
Frequently Asked Questions
Q: Can I have both an FHSA and an RRSP?
A: Yes, you can have both accounts and use them together for a home purchase under the HBP.
Q: What happens to unused contribution room?
A: Unused FHSA contribution room carries forward but is limited to $8,000 annually.
Q: Is the FHSA available in all provinces?
A: Yes, the FHSA is a federal program available to eligible Canadians across provinces.
