What Is a First Home Savings Account (FHSA)?

A simple explanation of how an FHSA can help Canadians save for their first home

The First Home Savings Account, commonly called an FHSA, is a registered account designed to help eligible Canadians save for their first home. FHSAs became available on April 1, 2023. And no, that was not an April Fools’ joke. It is a useful financial planning tool that combines important features of both an RRSP and a TFSA.

The first major benefit is an income tax deduction. Contributions to an FHSA are generally deductible, which can reduce your taxable income. For example, an $8,000 contribution may reduce your taxable income by $8,000 for the year, subject to your available FHSA participation room. The actual tax savings will depend on your income and marginal tax rate.

The second major benefit is tax-sheltered investment growth. Interest, dividends and capital gains earned on investments held inside the FHSA are not taxed while they remain in the account. This allows more of your money to stay invested and potentially compound over time.

When you are ready to purchase a qualifying first home, you may withdraw the funds tax-free, provided you meet the conditions for a qualifying withdrawal. The withdrawal does not have to be repaid. In effect, you can receive a tax deduction when you contribute, benefit from tax-sheltered growth while the money is invested, and make a tax-free qualifying withdrawal to help fund your home purchase.

An FHSA can therefore be one of the most tax-efficient ways for an eligible first-time home buyer to build a down payment. The rules include eligibility requirements, contribution limits and withdrawal conditions, so it is important to review your circumstances before contributing or withdrawing funds.

Key point: An FHSA offers a potential deduction on   contributions, tax-sheltered investment growth and tax-free qualifying   withdrawals for a first home.

General information only. FHSA eligibility, contribution and withdrawal rules should be reviewed for each individual situation.