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FHSA withdrawals, and withdrawals under the HBP, can be made for the same qualifying home purchase.
The HBP allows you to borrow up to $35,000 from your RRSP tax free, subject to eligibility and conditions, but it must be paid back within 15 years. With an FHSA, you can contribute a lifetime maximum of $40,000 and qualifying withdrawals are also tax free—however, they don’t need to be repaid.
You can contribute to both an HBP and FHSA.
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.
Yearly contribution limit = $8,000
Lifetime contribution limit = $40,000
You can 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.
If you don’t use the money in your FHSA within 15 years of opening the account (or by the end of the year you turn 71), you can transfer it—tax free—to an RRSP or RRIF. The transfer would not impact your RRSP’s available contribution room.
You can also simply withdraw the funds from your FHSA, but the amount would be subject to withholding tax and be included as income on your tax return.
You can open multiple FHSAs across different financial institutions, but the total contribution amount to all FHSAs cannot exceed the annual and lifetime contribution limits.
FHSA spousal plans are not available.
You and your spouse can each open your own FHSA. As long as you’re both first-time homebuyers, you can both use your accounts to buy the same home. As a couple, your annual combined contribution room would be $16,000 ($8,000 x 2), with a lifetime maximum of $80,000 ($40,000 x 2). Spouses cannot contribute to each other’s FHSAs.
You can transfer funds in either direction between your RRSP and your FHSA without any tax consequences, as long as they are transferred directly between the financial institutions of the plans involved, and as long as the funds you add to your FHSA don’t exceed your unused FHSA contribution room. Withdrawals from an RRSP are subject to taxes.
You can also transfer funds between FHSAs without tax consequences, but it also must be a direct transfer.
In general*, any remaining account value will be treated as income of the estate, unless directed otherwise in the FHSA contract or in the deceased’s Will:
- If a spouse or common law partner is named as either successor holder or beneficiary, options may include receiving the amount as a taxable distribution, or transferring tax-deferred to the survivor’s own FHSA (if qualifying criteria are met), RRSP or RRIF.
*We recommend you seek advice from our Investment Specialists to be sure you are getting the correct information specific to your unique situation.
Any contributions over the $8,000 annual limit (except for any unused portions from the previous year) will be penalized 1% on the highest excess amount in the month, for each month that the excess remains in your account.
You must use the funds in your FHSA to purchase a first home within 15 years of opening the plan, or by the end of the year you turn 71.
Amounts remaining in any FHSAs at the end of the defined period will be treated as income for that year. Tax will apply on FHSA withdrawals taken for any purpose other than a home purchase. However, this can be deferred by transferring into a RRSP, or to a registered retirement income fund (RRIF).
Learn more about this Government of Canada initiative here: First Home Savings Account (FHSA) - Canada.ca
The FHSA must be closed by December 31 of the year you turn age 71. If the FHSA has not been used to purchase a qualifying home, it must be closed on the 15th anniversary of first opening the account. 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 can be transferred to an RRSP or RRIF on a tax free basis before the FHSA closure. Or, the funds can be withdrawn; however, they will be taxed.
If a withdrawal was made 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.
You can continue to make contributions to your existing FHSA after moving from Canada but will not be able to make a qualifying withdrawal as a non-resident. To make a qualifying withdrawal, you must be a resident of Canada at the time of the withdrawal and up until the time the home is bought or built.
Non-qualifying withdrawals as a non-resident are subject to withholding tax.