On April 1, 2023, the federal government introduced the First Home Savings Account, or FHSA. This tax-deductible, tax-sheltered account permits you to contribute as much as $8000 a year, up to a lifetime maximum of $40,000 in deposits, to be used towards the purchase of your first home! In a nutshell, it offers the strength of the RRSP (being tax-deductible) with the strength of the TFSA (being tax-sheltered), making it tax-free in essence.
Tax-Free?!
Tax-Deductible!
Much like the RRSP, the FHSA is tax-deductible. On your year-end income tax return, the money contributed is exempt from taxes – it is deducted from your income, reducing the tax you end up paying so long as it remains in the account.
Tax-Sheltered!
Much like the TFSA, the FHSA is tax-sheltered. Any increases in value your eligible stocks, ETFs, mutual funds, or bonds make within that account will not be subject to taxation at the end of each year or when withdrawn.
FYI, unlike the RRSP, contributions made to the FHSA in the first 60 days of the year are not deductible on your previous year’s income tax return. If you’re like me, that first 60 days is when you make most if not all of the lump sum transfers into your RRSP when accounting for the previous year’s tax return, so just know you can’t do it for the FHSA – if you do so, it’ll end up having to be deducted from the current year instead.
Can I make withdrawals from my FHSA as well as from my RRSP using the Home Buyer’s Plan (HBP)?
Yes, if you are eligible for the FHSA and HBP, you can in fact do it!
There had previously been policy about not being able to make withdrawals from both the HBP and FHSA for one’s first home, and even at the time of writing this post, one of the main pages on the Canada.ca FHSA site still stated that “an individual would not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase”. However, this was later changed, as advertised by several major Canadian banks and news outlets. Thus, it would seem that particular Canada.ca page had not been updated yet to reflect the current changes. Here is another more recently updated page on the Canada.ca FHSA site where they state that yes, indeed “you can withdraw amounts from your RRSP under the Home Buyers’ Plan (HBP) and make a qualifying withdrawal from your FHSA for the same qualifying home, as long as you meet all of the conditions at the time of each withdrawal”. Best practice would be to verify with your bank or credit union as you go, particularly since the policy could change and already has changed since its inception.
Let’s take whatever help we can get, even if it’s not as much as we probably needed to do things properly.
I personally used the HBP for my first home in the beautiful Green Forest subdivision of Beaver Bank, Nova Scotia. Kelly and I would later start a family in that home, so I’m very grateful the HBP existed as I might not have secured a house on a decent timeline otherwise. I barely had $15,000 in my RRSPs and saving for a home was an afterthought, so I didn’t fully capitalize on the HBP let alone have any additional savings for an FHSA -if one had existed at the time- or even a lump sum down payment. Even with the HBP as a tool, I was lucky to have scraped together 5% for a down payment back then! I’d imagine with the greater pinch many are feeling these days, the FHSA as a measure to help the average Canadian with the costs of buying a home could be viewed as too little, too late. Still, I do believe the FHSA -in and of itself- is of great merit, and worth highly considering for somebody thinking about buying their first home sooner or later. I know it will be on my mind when my three girls turn 18 and become eligible for accounts of their own.
Pictured above: Me with my newly sold home; my lawn that I was so proud to mow the first time, but which got old very quickly; my original 70s fireplace; and also, a sweet housewarming gift from my then REALTOR® and now wife Kelly Smith, formerly Kelly Hogan. Not pictured: a case of beer and some sandwich meat she left for me in the fridge!
If the FHSA seems like something you might be interested in, and you’re wondering if you’re eligible, then I’d urge you to read up on it at Canada.ca and speak with the experts at your bank or credit union to learn all the important rules, caveats, and ways you might be able to best take advantage of one in saving for your first home. For example, you might qualify as a first-time home buyer even if you’ve owned a home in the past and your actual first home is old news! The definition they use for a first-time home buyer is a little different than what one might expect:
You will be considered to be a first-time home buyer if you did not, at any time in the current calendar year before the account is opened or at any time in the preceding four calendar years, live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that either:
Canada.ca
- you owned or jointly owned
- your spouse or common-law partner (at the time the account is opened) owned or jointly owned
So, there you have it: the First Home Savings Account. You could be eligible even if you sold your first home several years ago, and lived or rented with family or roommates since then, so don’t dismiss it outright like I almost did. Heck, even if you’re comfortably a homeowner of many years and totally ineligible, it could be worth keeping in mind as a recommendation for friends and fam alike.
Keep the money for important needs like shelter in the possession of you and yours, there’s no better place for it!
My old front yard of my first home in Green Forest, Beaver Bank on a beautiful Autumn day. Sometimes I do miss it.