First Home Savings Account (FHSA)
Introduced in 2022 and approved by Parliament in 2023, the FHSA is a new type of registered savings plan to help first-time home buyers save for that purchase. Like the RRSP, it allows you to deduct the contributions from your annual taxable income and like the TFSA, the growth is tax-free as is the withdrawal of the funds for the home purchase. Unlike the Home Buyers’ Plan (HBP), another option for a new home buyer to use funds in their RRSP without withholding taxes (up to $35,000) to purchase a home, withdrawals made from an FHSA do not have to be paid back as they do with the HBP to your RRSP.
Requirements for the FHSA are that you are at least 18 years of age and under 71 years of age (same age limit as an RRSP), a resident of Canada with a Social Insurance Number and that you have not lived in a qualifying home in Canada that you and/or your spouse owned at any time in the part of the calendar year before you open the FSHA or at any time in the preceding four calendar years. (This last requirement about owning a home is the same for the HBP).
The lifetime FHSA contribution limit is $40,000 over a maximum of 15 years. Your contribution room accumulates annually as of the year of opening so it will take you five years to reach the $40,000 limit. The maximum annual contribution is $8,000 per year and you can carry forward any unused contribution room, however, the maximum unused amount you can contribute each year is limited to $8,000. This means in any one year, you can only contribute $8,000 for that year and $8,000 for a previous year ($16,000 total).
Withdrawals from an FHSA in order to purchase a first qualifying home (as defined in the regulations) are not taxable. This includes, if applicable, all the growth generated in the FHSA. After making a withdrawal to purchase a property, you must close your FHSA by December 31st of the year following the withdrawal.
For the tax deduction, the deadline to contribute to your FHSA is December 31st of each year, unlike RRSPs which allows contributions up to 60 days after the end of the fiscal year. FHSA deductions can be carried forward until the age of 71.
You can contribute to your FHSA up until December 31st of the 15th year after opening your account or until you turn 71 years of age. If you do not use your FHSA during the participation period, you can withdraw the funds and pay taxes on the gains, or transfer all of the value to your RRSP (or RRIF if one is opened or at age 71), regardless of the contribution room remaining in your RRSP.