First Home Savings Account (FHSA): how it works, the limits, and why to open it as early as possible

The First Home Savings Account (FHSA — CELIAPP in French) combines the best of an RRSP and a TFSA: your contributions lower your taxes, and the withdrawal to buy your home isn't taxed. Unlike the Home Buyers' Plan, there's nothing to pay back. But there's one FHSA rule that trips up a lot of people: contribution room only builds up once the account is open.

FHSA limits: annual, lifetime and carry-forward

• Annual limit: $8,000 per year.
• Lifetime limit: $40,000, which means at least 5 years of contributions.
• Carry-forward of unused room: up to $8,000. In any single year, you can therefore contribute at most $16,000.

The carry-forward is capped: if you contribute nothing for two or three years, you still only get back $8,000 of unused room. Contributing a little every year beats counting on a big catch-up.

Why open an FHSA early, even with a small amount

Contribution room starts building up in the year you open your first FHSA, not before. If you're thinking of buying in two or three years, it pays to open the account now, even if you put almost nothing in it the first year.

In this example, opening the account one year earlier lets you contribute $8,000 more the following year, and claim the matching deduction. To open an FHSA, go to your financial institution (bank, credit union or investment dealer): you must be a first-time home buyer as defined by law.

Who counts as a first-time home buyer?

You qualify if, in the current year or the previous 4 calendar years, you didn't live, as your principal residence, in a home owned by you or your current spouse. Having owned a home a long time ago doesn't necessarily disqualify you.

Taxes: a deduction now, a tax-free withdrawal later

• Deduction: your contributions are deductible federally and in Quebec (line 215 of the Quebec return). You can also carry the deduction forward to a later year, for example a year when your income will be higher.
• Transfer from an RRSP: allowed, but the amount transferred isn't deductible, since it was already deducted in the RRSP.
• Qualifying withdrawal: tax-free and never repaid.

Conditions for a qualifying withdrawal

For the withdrawal to be tax-free, you must fill out form RC725 and give it to your financial institution, and meet these conditions:

• have a written agreement to buy or build the home;
• acquire the home before October 1 of the year after the withdrawal;
• not have acquired the home more than 30 days before the withdrawal;
• intend to live in it as your principal residence within one year of buying it.

The FHSA can be combined with the HBP for the same home. To see how the two add up in a down payment, read our page on combining the FHSA and the HBP and our guide to the Home Buyers' Plan withdrawal.

The FHSA is mainly a way to build your down payment. To find out how much you need for your target price, and how much of it your FHSA can cover, use our down payment calculator.

When do you have to close your FHSA?

The account must be closed no later than December 31 of the year in which the first of these events occurs:

• the 15th anniversary of opening your first FHSA;
• you turn 71;
• the year after your first qualifying withdrawal.

And if you never buy? The money you've built up can generally be transferred to an RRSP with no immediate tax impact. The details depend on your situation: check with your financial institution before the closing deadline.

Official sources: Canada Revenue Agency — First Home Savings Account.

Frequently asked questions