If you withdraw from your FHSA for a non-qualifying purpose, the withdrawal is generally taxable. You lose part of the FHSA advantage because funds are no longer tax-free on exit.
What happens next
- Withholding tax may be applied.
- Full amount is reported as taxable income.
- You cannot re-contribute the withdrawn amount as new FHSA room.
Better alternatives
- Use a qualifying withdrawal for eligible first-home purchase.
- Transfer FHSA to RRSP/RRIF if home purchase is unlikely.