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Carry forward unused portions of your annual contribution limit up to $8,000, giving you the flexibility to contribute even more towards your first home in the future. For example, if you contribute $5,000 to FHSA in 2023, you can add the remaining $3,000 in 2024 (in addition to your annual contribution limit of $8,000), subject to your lifetime contribution limit. Keep in mind that carry-forward amounts start accumulating only after you open an FHSA.
You may have more than one FHSA, but the total contribution amount to all of them should not exceed the annual and lifetime contribution limits.
Contributions made within the calendar year fall under the annual contribution limits.
You can claim FHSA contributions as a deduction against your taxable income from all sources. This deduction will decrease your taxable income for the year, and thus, your taxes payable. Your actual tax savings will depend on your marginal tax rate.
You can diversify your investments in your FHSA by holding different types of qualifying investments. These investments are similar to those allowed in RRSPs and TFSAs and include mutual funds*, exchange-traded funds (ETFs), publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs).
Withdrawals made to purchase a qualifying home from your FHSA are tax-free, provided they meet certain conditions. These conditions include:
- being a resident in Canada from the time of withdrawal to the acquisition of the qualifying home,
- being a first-time home buyer, and
- having a written agreement to buy or build the home before October 1 of the year following the year of withdrawal.
Additionally, the qualifying home must be a housing unit located in Canada and intended to be used as a principal place of residence.
If there are funds remaining after making a qualifying withdrawal, you can transfer them to another FHSA, RRSP, or RRIF on a tax-free basis before the end of the year following the year the first qualifying withdrawal was made. However, withdrawals and transfers do not replenish FHSA contribution limits.
Non-qualifying withdrawals from FHSA are subject to taxes and withholding. Be sure to plan your withdrawals carefully to avoid unexpected tax implications.
The FHSA account must be closed by certain deadlines. If you turn age 71, it must be closed by December 31 of that year. If the FHSA account has not been used to purchase a qualifying home, it must be closed by December 31 of the 15th anniversary of the account's first opening. If the FHSA account was used to make a qualifying withdrawal, it must be closed by December 31 of the year following the year of that withdrawal.
Unused funds in the FHSA account can either be withdrawn or transferred to an RRSP or RRIF on a tax-free basis before the account closure. However, if funds are withdrawn, they will be taxed.
If you have used FHSA funds to purchase a qualifying home, unused funds can be transferred to an RRSP or RRIF on a tax-free basis until December 31 of the year following the year of the qualifying withdrawal.
It is possible to make withdrawals from both your FHSA and your RRSP under the Home Buyers' Plan (HBP) for the same qualifying home purchase.
Withdrawals under the HBP are borrowed from your RRSP interest-free, up to a maximum of $35,000. The amount borrowed must be repaid within 15 years. In contrast, qualifying withdrawals from your FHSA are tax-free and do not require repayment.
*subject to eligibility and conditions.
Achieving Your Dream of Homeownership with a FHSA
Meet Sarah, a young professional who has been renting an apartment for a few years. She's been dreaming of owning her own home but hasn't been able to save enough for a down payment. Sarah hears about the First Home Savings Account (FHSA) and decides to open one. She knows that with an FHSA, she can contribute up to $8,000 annually and up to $40,000 over her lifetime, tax-free. Sarah sets up automatic contributions of $500 per month to her FHSA, which is the maximum she can afford at the moment.
After two years of saving, Sarah has accumulated $12,000 in her FHSA, thanks to the tax-free investment earnings and the option to carry forward unused contributions. She also learns that she can combine her FHSA with the Home Buyers' Plan (HBP) to withdraw up to $35,000 from her RRSP to use towards her down payment. Sarah decides to take advantage of this and withdraws $25,000 from her RRSP and $12,000 from her FHSA, for a total of $37,000.
With a down payment of $37,000, Sarah is able to purchase her first home, a modest condo in the city. She's thrilled to be a homeowner and knows that her FHSA and HBP savings helped make it possible.
