Decoding the FHSA: Demystifying How It Works

The FHSA combines certain advantages of TFSAs and RRSPs:

• Like RRSPs, contributions to an FHSA are deductible;
• Revenue and profit from an FHSA are sheltered from tax;
• Like a TFSA, eligible withdrawals (principal and revenues) are not taxable.

N.B. Individuals can benefit from FHSA advantages only once in their lifetime.
Detailed comparative table

Detailed comparative table (in French).

Only individuals can open FHSAs. Corporations or trusts do not have access. To be eligible to open an account, individuals must:

• Be a resident of Canada;
• Be between 18 and 71 years of age;
• Be considered a first-time home buyer.

This last condition implies that the individual’s principal place of residence must not have been a home owned or co-owned by the individual or spouse in the current year (prior to opening the FHSA) and in the four preceding calendar years.

These conditions must be met every time an FHSA is opened even if this is a transfer between financial institutions.

You may have several FHSAs. However, the holding period criteria are based on the date the first FHSA is opened.

An $8,000 annual limit applies as of the date on which the account is opened up to a maximum of $40,000.

Once the account is open, any unused contribution room in a given year is carried over to the following year, up to a maximum of $8,000.

No, only the holder may contribute to the FHSA and obtain the applicable deductions.

Unlike RRSPs, contributions made within 60 days of the following year cannot be deducted in that year. Therefore, you have until December 31 of the taxation year to contribute to the FHSA in order to deduct it in the same year (and not until the following March 1 as in the case of RRSPs).

The deduction can be claimed in the tax year in which your contribution is made, or in a subsequent tax year, without limit, even after your FHSA has been closed.

a) Can I transfer an RRSP or RRIF to an FHSA?

• You can transfer amounts from the RRSP to the FHSA until you reach the maximum contribution limit for the transfer year.
• However, transferring amounts from your RRSP reduces accumulated FHSA contribution room and will not entitle the holder to a deduction.
• You cannot transfer from an RRIF to an FHSA.

b) Can I transfer an amount from the FHSA to an RRSP or RRIF?

Both your contributions and your returns can be transferred to your RRSP or RRIF without affecting your RRSP contribution room.

c) Can I transfer an amount from a TFSA to an FHSA?

Direct transfers from a TFSA to an FHSA are not eligible (and vice-versa). If you wish, you may withdraw funds from your TFSA to then contribute to your FHSA.

Remember that withdrawals from a TFSA generate new TFSA contribution room the following year.

Yes, you can. For example, you might want to open an FHSA at a new financial institution, while retaining your existing FHSA funds at the first financial institution.

However, it’s important to remember that each time you open an FHSA, you must meet the criteria mentioned in question 2: “Who can open an FHSA?” Furthermore, the lifetime contribution limit remains at $40,000 for all open FHSA accounts.

You may have the same kinds of investments for your FHSA (“eligible investments”) as you would for the TFSA, RRSP and RRIF.

All FHSAs must be closed at the end of the taxation year following the one in which the first of the following events occurs:

• The death of the last owner;
• The 14th anniversary of the day on which the first FHSA was opened;
• You turn 70;
• You make a qualifying withdrawal from your FHSA.

Thus, when the limited life of the FHSA account is reached, the account ceases to be tax-exempt and you must include the fair market value (“FMV”) of the account in your income for that year.

a) Qualifying withdrawal: for a withdrawal to be non-taxable, it needs to be considered a “qualifying withdrawal.” Therefore, at the time of withdrawal, you must:

• Submit a written request to make a qualifying withdrawal by completing the form;
• Specify the location of the qualifying home you wish to use as your principal place of residence (it must be used for this purpose no later than one year after its purchasing);
• Be a resident of Canada throughout the period from the time of the withdrawal to the purchase of the qualifying home (or death of the owner, whichever occurs first);
• Not have been an owner-occupant during the period from the start of the fourth calendar year prior to the withdrawal to the 31st day prior to the withdrawal;
• Have entered into a written agreement for the purchase of the qualifying dwelling or its construction before October 1 of the calendar year following that in which the amount is received;
• Not have purchased the qualifying home more than 30 days before.

N.B.: Contrary to the requirements for opening an FHSA or participating in the HBP program, if you resided in a home owned by your spouse between the time you opened the account and made the withdrawal, you can still make a qualifying withdrawal.

When a withdrawal qualifies as a qualifying withdrawal, the amount withdrawn is non-taxable, whether or not it is used as a downpayment for the purchase of a qualifying first home.

b) Taxable withdrawal: Savings that do not meet the “qualifying withdrawal” conditions will be taxable and subject to withholding tax at source. To avoid this, you can transfer your savings to an RRSP or RRIF at any time prior to closing the FHSA.

c) Transfers from an RRSP or RRIF: Transfers can be made at any time. You don’t have to wait for the FHSA to be closed before transferring assets to your RRSP or RRIF. There are no tax consequences at the time of transfer, except for excess FHSA contributions. The transfer amount is not limited by and has no impact on RRSP contribution room.

Note, however, that FHSA contribution limits are not reinstated following a qualifying withdrawal, a taxable withdrawal or a transfer.

You will be charged a penalty on the first dollar of over-contribution. The penalty is a tax of 1% per month, calculated on the highest excess amount for each month. Excess contributions are also not tax-deductible.

When an FHSA holder dies, no new contributions can be made to the FHSA, even by the executor of the estate. There is no inclusion in the deceased’s income tax return. It is the beneficiaries (including the estate) who are taxed on the amounts paid into the FHSA (contributions and capital gains).

Where the spouse is the beneficiary, a rollover to an FHSA, RRSP or RRIF is possible under certain conditions.

A transfer is also permitted in the event of a break-up. In this case, transferring from an FHSA to the FHSA, RRSP or RRIF of the holder’s former spouse or common-law partner is possible if the former spouse is entitled to an amount as a result of the separation of property following the breakdown of the relationship. This type of transfer is similar to possible transfers from an RRSP or TFSA in the event of death.

Yes, you can combine the HBP and the FHSA in order to buy the same qualifying first-time home.

Here are a few distinguishing factors between the FHSA and the HBP:

a) The FHSA does not require contributions to remain in the account for at least 90 days to be deductible or before a qualifying withdrawal can be made;

b) Qualifying FHSA withdrawals do not have to be repaid, whereas the HBP withdrawal must be repaid to the RRSP;

c) All funds accumulated in the FHSA can be withdrawn to acquire a qualifying home, while the maximum HBP withdrawal is set at $60,000 ($35,000 before April 17, 2024);

d) The FHSA can only be used once in a lifetime, although, under certain conditions, a person may be able to access the HBP again.