Menu Toggle
  1. Home
  2. Mortgages
  3. How The Tax-Free First Home Savings Account Can Help You Buy A House
Published May 10, 2023

How The Tax-Free First Home Savings Account Can Help You Buy A House

The First Home Savings Account combines beneficial aspects of an RRSP with those of a TFSA to help Canadians save for a home purchase.

First-time Canadian home buyers now have access to a new savings and investment tool to help them prepare for their initial run at the housing market: the First Home Savings Account.

Combining aspects of tax-free savings accounts and registered retirement savings plans, the FHSA is a registered account in which you can save up to $8,000 per year to a maximum of $40,000.  

Let’s find out more about the FHSA and see if it can get you closer to your dream of buying your first home.

Where can you sign up for an FHSA?

Even though the First Home Savings Account was launched on April 1, Canadian financial institutions still seem to be getting their offerings in place. As of May 10, 2023, you can sign up for an FHSA at:

We’ll update this page as more FHSA options hit the market.

How the First Home Savings Account works

Eligible Canadians can set up a First Home Savings Account at any financial institution that offers TFSAs and RRSPs: banks, credit unions, life insurance companies and Canadian trust companies. An FHSA should be easy to open and fairly straightforward to use.

You can deposit funds into your First Home Savings Account up to an annual contribution limit of $8,000, and a lifetime contribution limit of $40,000. Like an RRSP, those contributions are tax-deductible, which is one of the FHSA’s more interesting benefits.

The money in your FHSA can be used to purchase various investment products, like mutual funds, stocks, bonds and guaranteed investment certificates. You won’t have to pay taxes on any of the gains these investments generate — another nice perk.

When you purchase your first home, you’ll submit a request to your FHSA issuer that confirms your eligibility to make a qualifying withdrawal. If all’s well, you’ll receive your savings and put the full amount toward your down payment, deposit or closing costs tax-free. 

FHSA withdrawals

Because the First Home Savings Account is designed to help home buyers, only withdrawals put toward a home purchase will qualify and receive tax-free treatment. 

To make a qualifying withdrawal, you must:

If your withdrawal doesn’t meet these conditions it will be considered non-qualifying. 

Non-qualifying FHSA withdrawals will be added to your taxable income for the year, which could lead to an outsized tax bill. Your FHSA provider will also collect a withholding tax on non-qualifying withdrawals that’s “consistent with the treatment applicable to taxable RRSP withdrawals,” and those penalties can be steep[1].

You can, however, transfer money from a First Home Savings Account to an RRSP or registered retirement income fund on a tax-free basis. These transfers won’t reset your lifetime FHSA contribution limit, but they won’t reduce your RRSP contribution room either.

Free Mortgage Affordability Calculator

Don’t know how much mortgage you can afford? Use our free mortgage affordability calculator to estimate how much you can afford. See how budget, down payment, and debt ratios affect mortgage affordability.

Ad Icon

Other FHSA contribution rules

In addition to the $8,000 yearly and $40,000 total contribution limits, there are a few other rules to keep in mind when funding your FHSA.

Unlike with RRSPs, your annual FHSA contribution limit applies to a calendar year, and doesn’t include the first 60 days of the following year. After December 31, the contribution time for any particular year is up.

If you don’t hit your annual FHSA contribution limit, the leftover amount carries over to the next year. If you contribute $4,000 in 2023, for example, you’ll have $12,000 worth of contribution room to work with in 2024.

You can hold more than one FHSA, but you have to adhere to a single annual and lifetime contribution limit. If you go over your annual contribution limit, you’ll be taxed at a rate of 1% per month on the excess contribution amount. Your over-contribution will be applied to next year’s total once January 1 rolls around.

You can help your spouse or common-law partner contribute to their FHSA by sharing funds with them, but whatever money you provide can’t be claimed as a deduction for tax purposes.

Who is eligible for the First Home Savings Account?

To open a First Home Savings Account, you must:

According to the federal government, you’re a first-time home buyer if you:

If you own property through beneficial ownership, like a corporation, you won’t be eligible for the program. 

Will the First Home Savings Account actually help you buy a house?

That’s the $40,000 question. Answering it means weighing the FHSA’s benefits and drawbacks.

Tax advantages

The FHSA’s tax advantages could make it helpful. If you’re able to pay less in tax or score a larger refund, that extra money can be put toward your home purchase savings. It can make up part of your annual FHSA contribution or be funnelled into other savings/investment vehicles. Depending on how much your tax refund improves, you could also use it to pay down outstanding debt and improve your credit standing — all things that may help you get approved for a mortgage at a lower rate in the future

Better than the Home Buyers’ Plan?

The FHSA could be more advantageous than the Home Buyers’ Plan, which allows you to use up to $35,000 of your RRSP savings for a first home purchase. Unlike the HBP, the FHSA doesn’t require you to repay the amount withdrawn, and the FHSA’s contribution limit is higher.

There is the option of combining your FHSA with the Home Buyers’ Plan and giving your home buying budget a little extra juice. But because of the FHSA’s annual contribution limits, it’ll take time to grow your account’s balance. That may not be helpful if your RRSP is already well funded and you’d like to make use of the HBP in the next year. 

Modest contribution limit

Unless housing prices fall dramatically, it’s hard to see how FHSAs will cover much more than deposits on pre-construction properties or closing costs in most markets. And prices could rise in the five years it takes to save the full $40,000.

But if you’re determined to buy a house in five years or more, socking $40,000 away in a FHSA is arguably a better option than stashing it in a high-interest savings account or a TFSA that isn’t being used for investing. And if that first home remains elusive, you can always transfer your FHSA savings to an RRSP or RRIF and feel good about putting some money away for retirement. It’s not a bad Plan B.

Frequently asked questions about the First Home Savings Account

How much can I contribute to my FHSA in 2023?

Even though the First Home Savings Account is launching partway through 2023, the annual contribution limit remains $8,000. Any amount you don’t contribute can be carried over to the following year. If you save $5,000 in an FHSA in 2023, for example, you’ll have an $11,000 contribution  limit in 2024.

When will the First Home Savings Account launch?

The federal government marked April 1, 2023 as the launch date for the FHSA. Most financial institutions weren’t ready to offer FHSAs to their clients at that time, but by mid-April, multiple banks had made FHSAs available.

About the Author

Clay Jarvis

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. Thus far, his entire professional writing career has revolved around real estate. Prior to joining NerdWallet, he was the…

Read More

Article Sources

Works Cited
  1. Department of Finance Canada, “Design of the Tax-Free First Home Savings Account,” accessed November 22, 2022.
First-Time Home Buyer Guide: Incentives and Strategies to Get You That First Property

First-Time Home Buyer Guide: Incentives and Strategies to Get You That First Property

With its lack of supply and strict mortgage guidelines, Canada’s real estate market can be a dispiriting place for first time home buyers. But there are a number of incentive programs and home buying strategies you can leverage to improve your chances of nabbing that elusive first property. Understanding them can be a helpful first […]

How Much House Can I Afford?

How Much House Can I Afford?

“How much house can I afford?” The answer to this common question isn’t always straightforward. Ultimately, your home buying budget doesn’t depend on a house’s sale price. It depends on the mortgage amount you can get approved for.  Playing around with a mortgage calculator can give you a general idea, but how much you’re able to […]

Buying a House in 2023: 5 Things to Know

Buying a House in 2023: 5 Things to Know

Surging mortgage rates brought Canada’s housing market to a screeching halt in the latter half of 2022, marking the end of the country’s years-long real estate bonanza.  It’s a confusing time for buyers still on the hunt for a home. The 2022 slowdown is the most severe market reversal many Canadians will remember, yet prices […]

How Much for a Down Payment on a House?

How Much for a Down Payment on a House?

When it comes to down payments, bigger is usually better. But you don’t necessarily need to put 10% or 20% down to buy a house in Canada. How much you’ll need for a down payment depends on three factors: Canada’s mortgage guidelines, the price of the home you’re buying and the requirements of your mortgage […]

Back To Top