FHSA

The First Home Savings Account (FHSA), available since April 2023, combines the best features of an RRSP and a TFSA for first-time home buyers: contributions are deductible like an RRSP, and qualifying withdrawals to buy a home are tax-free like a TFSA. The deduction is claimed on line 20805 using Schedule 15.

ELIGIBILITY TO OPEN

• Canadian resident, at least 18 (19 in some provinces), and not older than 71 at the end of the year.

• A first-time home buyer: the individual did not live in a qualifying home they owned or jointly owned, as a principal place of residence, at any time in the current year or the previous four calendar years. The same applies to a home owned by a spouse or common-law partner in the current year before opening.

LIMITS

• Annual participation room: $8,000.

• Lifetime limit: $40,000.

• Unused room carries forward, but only up to $8,000, so the maximum contribution in any year is $16,000.

• Room begins only once the account is opened, so opening an FHSA early, even with no deposit, starts the room accumulating.

• Over-contributions are taxed at 1 percent per month on the highest excess in the month.

DEDUCTION RULES

• Contributions made in a calendar year can be deducted only for that year or carried forward; unlike the RRSP, there is no 60-day window into the next year.

• Deductions can be deferred indefinitely to a higher-income year.

• Amounts transferred in from an RRSP are not deductible (they were already deducted) but use FHSA room.

WITHDRAWALS

• Qualifying withdrawal: tax-free when the holder is a first-time buyer, has a written agreement to buy or build a qualifying home in Canada before October 1 of the following year, and intends to live in it within one year.

• Can be combined with the RRSP Home Buyers' Plan for the same purchase.

• Non-qualifying withdrawals are fully taxable on line 12905.

CLOSING THE ACCOUNT

An FHSA must be closed by the end of the fifteenth year after it was first opened, the end of the year the holder turns 71, or the end of the year after the first qualifying withdrawal, whichever comes first. Unused funds can be transferred tax-free to an RRSP or RRIF without using RRSP room, so an FHSA is useful even if no home is ever bought.