What is a Tax-free first home savings account?
The FHSA is an investment account meant to be used to purchase your first home. A FHSA is its own unique account that combines the tax-free growth aspect of a Tax-Free Savings Account (TFSA), and the tax-deductible contributions of a Registered Retirement Savings Account (RRSP). You can set aside up to $40,000 over a 15-year period.
Who is Eligible?
To open a FHSA you must be a resident of Canada and at least 18 years old. You (or your spouse/common law partner) also must not have not owned a home that was considered your principal residence in the previous calendar year or at any time in the preceding four calendar years. If that all checks out, you are in the clear.
How can I contribute, what are the limits?
You can contribute up to a maximum of $40,000 over the lifetime of the account, this is achieved by annual contribution limits of $8,000. You can also carry forward a maximum of $8,000 of your unused annual limit. Meaning if you contribute $4,000 in 2025, in 2026 you can contribute a maximum of $12,000, the annual limit resets at the beginning of each calendar year. Tax deductions can be carried forward indefinitely. You can contribute from your employment income, other existing non-registered accounts or TFSA, or transfer from your existing RRSP on a tax-free basis. Please note that with contributions from RRSP transfers, you cannot claim the tax deduction and the RRSP contribution room will not be reinstated. The account can remain open for a maximum of 15 years or until you turn 71 and contributions follow the same qualified investment criteria as a RRSP or TFSA.
FHSA and HBP
As you may know there’s already a way to access your savings for your home purchase in the form of a home buyers’ plan (HBP). The table below will summarize the two plans. You can now also use both the FHSA and HBP on the same property.
The new Tax-Free First Home Savings Account is an investment vehicle that combines the tax-free growth of a TFSA with the tax-deductible facet of a RRSP. It is a worthwhile consideration for anyone considered a first-time home buyer (renters included) – especially if you are fully contributing to their RRSP and TFSA.
