Saving for a down payment can feel overwhelming. Fortunately, the First Home Savings Account (FHSA) is a new tool designed to make this challenge easier. This registered plan combines the tax advantages of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA) to help you save for a home faster.
At Legacy Mortgage Group, we’re here to help you understand this new program and show you how to use it to save for your first home.
What Is the First Home Savings Account (FHSA)?
The First Home Savings Account (FHSA) is a new registered account for eligible Canadian residents who are first-time homebuyers (or haven’t owned a home in the past four years), between ages 18-81. It allows you to save for a home on a tax-free basis, with two major tax advantages:
- Tax-Deductible Contributions: Like an RRSP, your contributions to an FHSA are tax-deductible, which can help lower your taxable income each year.
- Tax-Free Withdrawals: Like a TFSA, any qualifying withdrawals you make from your FHSA to buy a home—including investment growth—are completely non-taxable.
The Canadian government has set a clear limit on how much you can contribute: $8,000 annually with a lifetime contribution limit of $40,000. Using the FHSA could mean thousands of dollars in tax savings compared to using a standard bank account or even an RRSP withdrawal.
What’s the Difference Between an FHSA and an RRSP?
Many first-time homebuyers ask, “Should I use my FHSA or my RRSP’s Home Buyers’ Plan (HBP)?” The good news is, you can often use both. Here are the key differences and similarities:
| Feature | FHSA | HBP (RRSP) |
| Tax Treatment | Contributions are tax-deductible | Contributions are tax-deductible |
| Repayment | Withdrawals for a qualifying home purchase do not need to be repaid. | Funds withdrawn must be repaid over a 15-year period. |
| Tax on Withdrawal | Qualifying withdrawals are completely non-taxable. | Withdrawals are non-taxable, but the amount must be repaid. |
| Contribution/Withdrawal Limit | Annual limit of $8,000 with a lifetime limit of $40,000. | Allows you to withdraw up to $60,000. |
| Lifespan | The account has a lifespan of 15 years from the time it is opened. | The account is an RRSP, so it can be maintained until the age of 71. |
| Non-Home Purchase Use | If funds are not used for a home, they can be transferred to an RRSP or RRIF on a tax-free basis. | If funds are not used for a home purchase, they remain in the RRSP. |
| Eligibility | You are eligible if you have not lived in a qualifying home as your principal residence that you owned or jointly owned in the current calendar year or in the previous four calendar years. | You can use the HBP if you or your spouse have not lived in a home you owned in the previous four calendar years. |
Source: Government of Canada, 2024
By understanding the differences, you can strategically use both to maximize your savings for a down payment.
Confused? Our mortgage experts can help you maximize both accounts to access more funds and greater tax benefits for your first down payment.
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FHSA Tips and Tricks
Taking advantage of the FHSA is a great way to get your down payment started, or build it quickly and maximize benefits! Here are our top tips to get your FHSA working for you.
- Automate Your Contributions: Setting up auto-transfers helps stay consistent, no matter what life throws at you.
- Invest for Growth: The FHSA can hold investments (like mutual funds or ETFs) that grow tax-free, boosting your savings faster.
- Keep an Eye on the Calendar: FHSA funds must be used for a qualified first-time purchase within 15 years of opening the account.
- Seek Expert Guidance: The best way to maximize your savings and understand your options is to speak to a mortgage expert. A Legacy Mortgage Group broker can help you get that much closer to your dream of buying your first home.
Home Ownership Is Closer Than You Think!
The First Home Savings Account is a game-changer for Canadians saving for a down payment, but it’s just one piece of the puzzle. At Legacy Mortgage Group, we are your trusted partner, providing expert guidance and tailored solutions to help you navigate the homebuying process. Our team of mortgage professionals is here to answer your questions and help you secure the best mortgage for your first home.
Ready to discuss your options? Contact us today for a free consultation to discuss your specific needs and find the perfect mortgage solution.