The First Home Savings Account, or FHSA, is a registered savings plan that allows any prospective first-time home buyer in Canada to save for their first home tax-free. FHSAs were just enacted on April 1, 2023, and are designed to help with making saving for a first real estate purchase more affordable.

If you’re wondering what is the First Home Savings Account and how to use it, let’s have a look at how it works.

Who Can Open An FHSA

To open an FHSA, you must be 18 years of age or older, be a Canadian resident, and be a first-home home buyer. In certain provinces, the legal age at which someone can enter into a contract is 19 years old which therefore would increase the minimum age in these regions to this.

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Who Is A First-Time Home Buyer?

A first-time home buyer, by FHSA standards, is anyone who did not at any time in the preceding four calendar years own a home in Canada as a principal place of residence. This includes any homes jointly owned, or if your spouse or common-law partner owned or jointly owned a home.

How To Open A First Home Savings Account

To open a First Home Savings Account, you can do so through an approved FHSA issuer, such as your bank, credit union, or even some trusts and insurance companies that have the power to help set up this type of account.

Types Of First Home Savings Account

  • Depositary FHSA is an account that will hold your funds, term deposits, or GICs and hold them tax-free.
  • Trusteed FHSA holds qualified investments beyond the limits of a depositary FHSA, including government and corporate bonds, mutual funds, and securities.
  • Insured FHSA is an annuity contract.

You can also have a self-directed First Home Savings Account if you want to build and manage an investment portfolio yourself.

How Much You Can Put In A First Home Savings Account

Much like the typical TFSA, or Tax-Free Savings Account, an FHSA’s participation room grows per year with a maximum amount per year allotted. You can enter funds in directly or move them from your Registered Retirement Savings Plan (RRSP).

The first year you open your FHSA, the limit is set at $8,000. The lifetime total FHSA limit is $40,000.

While you can carry forward unused FHSA participation room from prior years, the lifetime limit does not budge.

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FHSA As It Applies To A Spouse Or Common-Law Partner

You cannot participate directly in a spouse’s or common-law partner’s First Home Savings Account. Furthermore, only the holder of the FHSA can claim the contributions as a tax deduction on their income tax return.

How To Withdraw Money From A First Home Savings Account

When it comes time to withdraw money from a FHSA, depending on how you do it, this is when you may be charged taxes.

If it’s a qualifying withdrawal to purchase a home, it is considered tax-free. If it is for another purpose, it is taxable income and must be included as a part of your income on your tax return. If you transfer directly from a FHSA into an RRSP or RRIF, this is a transfer of funds and not a withdrawal and will be processed differently.

Please note that First Home Savings Account withdrawals are for homes that are occupied as a principal place of residence within one year of buying or building. If it is not your principal place of residence or you fail to occupy the property within a full year of its purchase, the income is then considered taxable and must be claimed as such.

Buying a home for the first time? We can help! Reach out to us today! Call (416) 319-6893 or email info@adrianandrea.com.