Is an FHSA Worth Opening in Canada? (First Home Savings Account)

For most people who qualify, an FHSA adds something and costs little. The deduction is worth the same as an RRSP deduction, a qualifying withdrawal for a first home is tax-free, and if you never buy, the money can move to an RRSP without tax. This page weighs up that case, including for people who aren’t sure they will buy, and notes where the account adds less. How the account works is covered in the FHSA guide and the FHSA guides directory.

What the account offers

The FHSA pairs the RRSP’s deduction going in with the TFSA’s tax-free treatment coming out, as long as the money goes toward a qualifying first home. Which of the three to fill first depends on your situation; see FHSA vs TFSA vs RRSP.

Is $40,000 enough to matter?

The deduction alone on the full lifetime amount:

Then the growth: whatever the investments earn comes out tax-free in a qualifying withdrawal, where the same growth in a non-registered account would be taxable: interest and dividends each year, capital gains when you sell. How much that adds depends on the return and the number of years; the FHSA calculator projects it.

If you might not buy

This is where the account’s design matters most. If you never make a qualifying withdrawal:

1. You can transfer the balance directly to an RRSP or RRIF, with no tax and no RRSP room used.
2. The deductions you claimed on the way in stay claimed.
3. The money keeps its tax deferral inside the RRSP or RRIF.

The result is close to having made extra RRSP contributions on top of your normal RRSP room. The alternative, a cash withdrawal, is taxable. The options and the deadline are on what happens to your FHSA if you never buy.

Who gets the most out of it

Where it adds less

• You don’t meet the first-time buyer test. You can’t open one; the first-time buyer rules explain the test.
• You are close to the age limit. The account closes by the end of the year you turn 71, which limits how many years of room you can build; when to open an FHSA shows the numbers.
• You won’t buy and your RRSP room is unused. The FHSA’s extra room matters less if you aren’t filling the RRSP anyway, although the deduction still counts.
• You need the money for other things before buying. A withdrawal that isn’t for a qualifying home is taxable, where a TFSA withdrawal isn’t.

Using it with the Home Buyers’ Plan

If you do buy, the FHSA can be combined with an RRSP withdrawal of up to $60,000 under the Home Buyers’ Plan for the same home. The FHSA money is never repaid; the HBP money is. The comparison is on FHSA vs the HBP, and using both.

Getting started

Once you decide to open one, best FHSA accounts compares providers and FHSA investment options covers what to hold.