Buying a house can be exciting, but it can also be expensive. Unless you have access to significant savings or an unexpected financial windfall, becoming a homeowner can feel out of reach for many people—especially in high-cost markets like Vancouver or the Greater Toronto Area (GTA).
While there's no easy solution, the Canadian government came up with something: the First Home Savings Account (FHSA). Launched in April 2023, it combines the benefits of a Tax-Free Savings Account (TFSA) with those of a Registered Retirement Savings Plan (RRSP).
The FHSA lets first-time home buyers save up to $40,000, tax-free, to put toward a down payment. The account is offered by financial institutions and allows you to hold investments like stocks, exchange-traded funds (ETFs), bonds, and guaranteed investment certificates (GICs) to grow your savings.
How it works is a little complicated, so we've gathered some common questions and answered them below.
What are the benefits of an FHSA?
An FHSA combines the advantages of an RRSP and TFSA:
Tax-deductible contributions: Like an RRSP, contributions can reduce your taxable income for the year.
Tax-free growth and withdrawals: Like a TFSA, investment gains and qualifying withdrawals are not taxed.
Here's an example: let's say you contribute $8,000 at the beginning of each year for 5 years (a total of $40,000) into an FHSA and earn an 8% annual return. You'd end up with $50,687 — your $40,000 in contributions plus $10,687 in tax-free growth that you can withdraw for a down payment without paying a cent of tax on it.
In a non-registered account with the same contributions and returns, that $10,687 gain would be taxable when you sell your investments. Assuming a 25.6% marginal tax rate and the 50% capital gains inclusion rate, you'd owe about $1,368 in tax, leaving you with roughly $49,319. And that's just the growth side — the FHSA also gives you a tax deduction on your contributions, which could save you another $10,240 at the same marginal rate over the 5 years.
Who can open an FHSA?
To qualify for an FHSA, you must meet these requirements:
Be between 18 and 71 years old
Be a Canadian resident
Be a first-time homebuyer (haven't lived in a home you owned in the current year or the previous 4 years)
If you own 25% or more of a home, the law considers you a beneficial owner — and that counts as ownership. You'll need to wait at least 5 years after leaving that house to open an account.
How to open an FHSA
Opening an FHSA is typically a simple process. You can open one through most Canadian financial institutions, including banks, credit unions, and registered brokerages. You'll need to provide your Social Insurance Number (SIN) and confirm that you meet the first-time homebuyer eligibility requirements.
FHSA contribution limits and carryforward
FHSA contribution limits work as follows:
Lifetime limit: $40,000
Annual limit: $8,000
Carryforward: Unused contribution room can be carried forward to future years
For example, if you contribute $5,500 in 2024, you could contribute up to $10,500 in 2025. That's the $2,500 leftover from 2024 plus the $8,000 of new room from 2025.
Are FHSA contributions tax-deductible?
Yes, your income for tax purposes is reduced by the amount you contribute to your FHSA. So if you contributed $8,000 in 2024 and your taxable income was $78,000, your FHSA contributions could reduce it to $70,000.
One important thing to point out: unlike an RRSP, any FHSA contributions you make in the first 60 days of a new year can't be used to reduce your taxable income for the year prior. They can only reduce your taxable income if they are made in the same calendar year.
What assets can go in an FHSA?
Like an RRSP or TFSA, FHSAs can hold various investment types:
Stocks
Exchange-traded funds (ETFs)
Bonds
Mutual funds
GICs
Other qualified investments
The exact options depend on your financial institution. You could treat it like a savings account and just deposit cash, but that would mean missing out on potential investment growth.
How to make a qualifying FHSA withdrawal
To make a tax-free qualifying withdrawal, you must meet these conditions:
Have a written agreement to buy or build a qualifying home in Canada
Complete the purchase by the required deadline (see 'Transfers, time limits, and closing your FHSA' below)
Intend to occupy it as your principal residence within 1 year
Because of the principal residence rule, you can't use these funds to buy an investment property. However, you're not immediately disqualified from opening an FHSA if you already own an investment property. The same rules about occupying the home apply: you can't have lived in the investment property in the year you open your FHSA or 4 years prior to that.
Transfers, time limits, and closing your FHSA
Important timelines for your FHSA:
Maximum holding period: 15 years from when you open the account
Purchase deadline: Close on your home by October 1 of the year after you withdraw funds
Move-in requirement: You must meet the FHSA principal-residence occupancy requirement
If you miss these deadlines, you'll be taxed retroactively.
You can transfer funds between different FHSAs at different financial institutions without penalty, as long as it's a direct transfer. If you reach the 15-year mark and haven't purchased a home, your account must be closed.
Are there penalties for overcontributing to your FHSA?
Any contributions over the $8,000 annual limit (excluding eligible unused room carried forward) are generally subject to a 1% penalty per month until the excess amount is removed.
What happens if you don't use the money in your FHSA?
If you don't buy a home within 15 years (or by age 71), you have two options:
Transfer tax-free: Move funds to an RRSP or Registered Retirement Income Fund (RRIF) without affecting those accounts' contribution limits (as long as you don't have excess contributions)
Withdraw and pay tax: Take the money out and pay income tax on the full amount
Next steps if you're considering an FHSA
If you're planning to buy a home in the future, taking action early can help you maximize your contribution room. You might also want to explore other strategies for saving for a house. Start by confirming your eligibility as a first-time homebuyer. Next, look at your budget to decide how much you can comfortably contribute each year — and while you're at it, consider how much mortgage you can afford.
Even if you can't contribute the full $8,000 right away, opening the account allows your unused contribution room to carry forward to future years.
