How the First Home Savings Account (FHSA) Works

Saving a down payment in today’s market can feel like pushing a boulder uphill. The First Home Savings Account (FHSA) is one of the few tools that meaningfully tilts the slope in your favour. Done right, it combines the tax deduction of an RRSP with the tax-free growth and withdrawals (for a qualifying first home) of a TFSA—giving you an efficient, flexible way to accelerate your path to ownership. Below, you’ll find a plain-English walkthrough of the rules, benefits, deadlines, and smart strategies, so you can use the FHSA with confidence.

What Is the FHSA?

The FHSA is a registered savings plan introduced by the Canadian federal government in 2023 to help first-time home buyers accumulate money toward buying or building a qualifying first home, tax-free under certain conditions.

It combines attractive features of other registered plans: much like an RRSP (Registered Retirement Savings Plan), your contributions are generally tax-deductible; like a TFSA (Tax-Free Savings Account), withdrawals for a qualifying home purchase are non-taxable.

Who Qualifies: Eligibility Rules

To open and benefit fully from an FHSA, you need to meet certain requirements:

First-time home buyer status: You (and your spouse or common-law partner) must not have owned and lived in a principal residence at any time in the current calendar year or in the four preceding calendar years.
Age and residency: You must be a Canadian resident for tax purposes, and usually at least 18 years old (or age of majority in your province), and you must open and use the plan before you turn 71.
Other criteria: Valid SIN (Social Insurance Number), certain provincial rules about “first-time” definitions may also apply.

If you don’t meet these, you may not be eligible, or your contributions / withdrawals may not receive the full benefits.

Contribution Limits & Timing

Understanding how much you can contribute and when is essential:

You can contribute up to $8,000 per year into an FHSA.
There is a lifetime contribution limit of $40,000. Once you have contributed that much in total (from all years), you can’t contribute more.
Carry-forward of unused contribution room: If in any year you don’t max out the $8,000, the unused portion carries forward to subsequent years, subject to rules and until you hit the lifetime limit.
Term of the account: Once opened, the FHSA has a maximum lifetime of 15 years from opening; OR it must be closed by the end of the year you turn 71, whichever comes first.

How the FHSA Works: Contributions, Withdrawals & Transfers

Here’s a breakdown of operations:

Contributions

You put money in (or transfer from an RRSP in some cases), subject to participation room limits.
Contributions reduce your taxable income (similar to RRSP contributions), which gives you a tax break in the year you make them.

Investment Growth

Funds inside the account can be invested in eligible instruments (e.g. GICs, mutual funds, stocks, bonds, etc.) depending on your financial institution.
Investment income or gains grow tax-free inside the FHSA, so long as withdrawals are qualifying.

Withdrawals

When you buy (or build) a qualifying home, withdrawals from the FHSA are tax-free. That includes both your contributions and any growth.
To make a qualifying withdrawal, you must have a written agreement to buy or build a home, intend to make it your principal place of residence within one year, and satisfy the first-time home buyer rule.

What Happens if You Don’t Use It for a Home

If the FHSA is not used to buy a qualifying first home, there are options:

You can transfer the savings (including investment growth) into an RRSP or RRIF, without triggering a tax hit, subject to certain conditions.
If you withdraw funds for non-qualifying purposes (i.e. not for buying a first home), then the withdrawal is taxable.

The account must be closed after its lifespan ends (15 years) or by December 31 of the year you turn 71. At that point, if not used for a home, funds must be transferred out or withdrawn.

Benefits of the FHSA

For aspiring homeowners, the FHSA offers several advantages:

Dual tax benefits: Immediate tax deduction on contributions, and tax-free growth and withdrawals (when used for a home). This makes it more efficient than saving in taxable accounts.
Focused savings: Helps you earmark and protect money specifically for your first home, avoiding temptation to divert towards other uses.
Flexibility: Unused room carries forward; if plans change, you can transfer to RRSP/RRIF.
No repayment requirement: Unlike the Home Buyers’ Plan (HBP) which lets you borrow from your RRSP but require repayment over time, FHSA’s qualifying withdrawals do not need to be paid back.

Common Pitfalls to Avoid

No financial tool is perfect. The FHSA has drawbacks and constraints you should understand.

Over-contributing and triggering the 1%/month penalty. Track your room across multiple FHSAs.
Withdrawing too early without a written agreement in place—or with a closing date that misses the October 1 deadline.
Acquiring the property first and then trying to withdraw; withdrawals must be within 30 days of acquisition at most.
Contributing after a qualifying withdrawal, expecting a deduction. You won’t get one.
Letting the account run past your maximum participation period without closing or transferring.

Smart Strategies to Get More From Your FHSA

1) Open Early to Start Carry-Forward

Because carry-forward starts only after you open your first FHSA, opening early—even with $0 contributed—creates future flexibility.

2) Coordinate With Your TFSA and RRSP

If you have RRSP room, consider whether RRSP contributions (for HBP later) or FHSA contributions (deductible now, tax-free out later) deliver more benefit this year.
If cash flow is tight, some savers transfer from RRSP to FHSA (non-deductible) to shift funds toward a future tax-free withdrawal. Compare marginal tax rates and timelines before you do.

3) Mind the October 1, 30-Day, and Residency Rules

Time your withdrawal so your closing/completion date is before October 1 of the next year, you have not already acquired the property more than 30 days prior, and you remain a Canadian resident from withdrawal to acquisition.

4) Avoid Post-Withdrawal Contributions

Once you make a qualifying withdrawal, stop contributing—those contributions won’t be deductible, and you could accidentally create an excess.

5) Use the Safety Valve If Plans Change

Not buying after all? Transfer the FHSA to your RRSP/RRIF tax-deferred before the participation period ends. It preserves your savings for retirement without eating RRSP room.

Frequently Asked Questions

Can I hold multiple FHSAs at different institutions?
Yes, but your total annual and lifetime limits still apply across all accounts.

What if a bank page lists a different annual limit?
Rely on the CRA as the authority. As of March 20, 2025, CRA cites $8,000 annual and $40,000 lifetime limits. Marketing pages can lag or contain errors—always double-check CRA guidance.

What investments are allowed?
The same broad list you see in RRSPs/TFSAs: cash, GICs, mutual funds, ETFs, most exchange-listed securities, and more (subject to issuer policies).

Can newcomers use the FHSA?
Yes—once you are a Canadian resident for tax purposes and meet the other conditions, you can open and contribute.

Final Thoughts—and Your Next Best Step

Used properly, the FHSA is one of Canada’s most powerful, buyer-friendly accounts. It can lower your taxes this year, grow your savings tax-free, and unlock a tax-free withdrawal when you are ready to buy—especially if you coordinate it with the HBP. Keep an eye on the October 1 and 30-day rules, avoid over-contributions, and plan your close or transfer before the participation window ends.

If you are ready to start house hunting, browse listings, The Johnson Team has got you covered. Don’t hesitate to contact us to start working with an agent right away.

Posted by Maryann Jones on September 15th, 2025

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