The FHSA is one of Canada’s most tax-efficient accounts precisely because qualifying withdrawals are completely tax-free. The flip side is that non-qualifying withdrawals — taking money out for anything other than a first home purchase — are fully taxable and permanently forfeit that contribution room. Here is what you are dealing with and what to do next.
What makes a withdrawal “non-qualifying”
Under FHSA withdrawal rules, a qualifying withdrawal requires:
- You are a first-time home buyer (no home owned and lived in during the current or preceding 4 years)
- You have a signed purchase or construction agreement for a home in Canada
- The home will be your principal residence within 1 year of purchase or construction completion
- You are a Canadian resident at withdrawal
A withdrawal is non-qualifying if any of these conditions are not met — for example, you withdrew before signing a purchase agreement, withdrew to cover moving costs after the purchase (not the purchase itself), realized you do not actually qualify as a first-time buyer, or simply took money out by mistake thinking it was a TFSA.
The tax consequences
A non-qualifying FHSA withdrawal is reported on a T4FHSA slip (see the T4FHSA guide) and added to your income on Line 13000 of your T1 return.
Example: You accidentally withdrew $8,000 from your FHSA. Your marginal rate is 43.4% (Ontario, ~$90,000 income).
- Additional taxable income: $8,000
- Additional tax owing: ~$3,472
- FHSA lifetime room permanently forfeited: $8,000
Unlike RRSP withdrawals, the financial institution does not withhold tax at source on FHSA non-qualifying withdrawals. This means the full tax bill arrives at filing time — potentially creating an unexpected balance owing plus CRA prescribed interest if you did not make instalment payments.
What you cannot undo
You cannot:
- Re-contribute the withdrawn amount to recover room
- Transfer it back into the FHSA
- Retroactively reclassify it as a qualifying withdrawal
- Avoid the tax by putting the money into an RRSP or TFSA
Your FHSA lifetime limit is $40,000 regardless of what you withdraw. If you have contributed $16,000 and withdraw $8,000 of it as a non-qualifying withdrawal, you have $24,000 of lifetime room remaining — the withdrawal did not restore any room.
What you can still do
1. Keep the account open and continue saving
The FHSA account stays open. Your remaining balance continues to grow tax-free. You can still make qualifying contributions up to your remaining lifetime room ($40,000 minus total lifetime contributions).
2. Transfer the remaining balance to an RRSP when ready
If you decide not to buy a home, you can transfer the entire remaining FHSA balance directly to your RRSP or RRIF at any time — tax-free, with no RRSP contribution room required. This must be done as a direct registered transfer, not a withdrawal and re-contribution. Contact your financial institution to complete a T2033 transfer form.
The transfer must happen before:
- The end of the year you turn 71, or
- December 31 of the 15th year after you first opened the FHSA — whichever comes first.
3. Combine FHSA with HBP for your home purchase
If you are still planning to buy a home and still qualify as a first-time buyer, your remaining FHSA balance still works. You can use your FHSA (tax-free qualifying withdrawal, no repayment) and the RRSP Home Buyers’ Plan ($60,000 per person, must repay over 15 years) together for the same purchase.
If you withdrew to cover home-related costs — check whether it qualifies
Some costs around a home purchase do qualify for the FHSA; others do not. Withdrawals must be for the purchase price of the home. They cannot be used for:
- Moving costs
- Renovation or repair costs
- Furniture or appliances
- Land transfer tax (paid separately from the purchase price, though it is a closing cost)
- Home inspection fees
If your withdrawal was for the purchase price itself and you have a signed agreement, you may still qualify — review the FHSA qualifying home purchase rules carefully before assuming it was non-qualifying.
Report it correctly at tax time
Your financial institution will issue a T4FHSA slip showing the non-qualifying withdrawal amount in Box 24. This amount flows to Line 13000 of your T1 return and is taxed as regular income.
If you use tax software, enter the T4FHSA slip in the FHSA section — it will handle the line assignments automatically. If you filed before receiving the slip, file a T1 Adjustment to add the income.
For the full rules on what the FHSA can and cannot be used for, see the FHSA guide.