What is the First Home Savings Account (FHSA)?

Are you a first-time homebuyer in Canada struggling to save for a down payment? Have you heard about the FHSA but don’t know what it is or how it works? You’re not alone.

The FHSA, or First Home Savings Account, is a relatively new savings account option designed to help first-time homebuyers in Canada save for a down payment. It offers some unique benefits that make achieving your dream of homeownership easier.

In this article, we’ll look at the Tax-Free First Home Savings Account (FHSA), how it works, and whether it might be a good option for you.

What is The First Home Savings Account?

The First First Home Savings Account (FHSA) is a tax-free and tax-deductible savings account in Canada designed to help first-time homebuyers save for a down payment on their first home. The account is available to Canadian residents who are 18 or older and have never owned a home.

One of the main benefits of the FHSA is that contributions to the account are tax-deductible, which can help savers reduce their tax bill. Additionally, the interest earned on the account is tax-free, which can help savers grow their savings more quickly.

However, there are also some drawbacks to the FHSA, including the fact that there are limits on how much can be contributed each year and that the funds in the account can only be used for a down payment on a first home.

Overall, the FHSA can be helpful for first-time homebuyers looking to save for a down payment. Still, it’s essential to carefully consider the pros and cons before opening an account. You can review the FHSA design in its entirety from the CRA here.

How to open an FHSA

To open an FHSA in Canada, you will need to follow these steps:

  1. First, choose a financial institution: You can open an FHSA with a bank, credit union, or other financial institution in Canada. Research different institutions to find one that offers the features and benefits that best suit your needs.
  2. Gather required documents: You must provide proof of identity and address to open an FHSA. This may include a driver’s license, passport, utility bill, or other documents as required by the financial institution.
  3. Open the account: Once you have chosen a financial institution and gathered the necessary documents, you can open the FHSA account. This can usually be done online, by phone, or by visiting a branch in person.
  4. Choose your investments: After you have opened your FHSA, you can choose the investments you want to make. This can include stocks, bonds, mutual funds, and other investment vehicles.
  5. Make contributions: You can contribute up to a certain amount each year to your FHSA. Check the current contribution limits set by the Canadian government to ensure that you are contributing within the allowable limits.

Once your FHSA is open and funded, you can earn tax-free investment returns on your contributions.

What’s the contribution limit?

The contribution limit for the FHSA is $40k lifetime, $8k annual, and must be made in the year to claim deductions, unlike RRSP. You can also carry forward unused $8k yearly amounts up to $40k in aggregate.

You can have multiple FHSA accounts, but contribution limits still apply in aggregate.

Any contributions after a withdrawal are not deductible unless contributions are made over the amount of withdrawals and under $8k annual total. So if you already contributed or withdrew $8k in one year, you have no contribution room.

One advantage is that you can carry forward un-deducted contributions to subsequent years if you’ve optimized your tax burden for the year.

Can I invest with my FHSA?

You can invest with your FHSA just as your TFSA, passively and only with long positions, which we will explain more about shortly. In addition, all gains are tax-free, meaning losses are not tax-deductible. Just ensure you know the TFSA day trading rules.

There is a risk to trading with your FHSA; we suggest opening a TFSA if you want to invest in risk-bearing assets. You should invest your FHSA in something guaranteed or low-risk, like GICs or well-performing low-risk mutual funds, to ensure your future house investment is secure.

What can I hold in my FHSA?

There are a variety of investments that you can hold in your Tax-Free First-Home Savings Account (FHSA) in Canada, with the same rules that apply to your TFSA and investing, which include;

Cash (Savings)

You can hold cash in your FHSA as a basic savings account, which earns interest and is easily accessible. However, interest rates are low, and this is not optimal.

Guaranteed Investment Certificates (GICs)

GICs are low-risk investments that offer a fixed rate of return for a set period of time. These are completely transparent with what will happen to your investment, which can be comforting.


You can buy and hold individual stocks in your TFSA. These can be Canadian or foreign stocks and can be purchased through a brokerage account. However, stocks carry risk, potentially losing your initial investment.


You can buy and hold bonds in your TFSA, including government, corporate, and other fixed-income securities. These are great for your FHSA as they are fixed-income.

Exchange-Traded Funds (ETFs)

ETFs are investment funds that trade on a stock exchange. They offer exposure to a diversified portfolio of stocks or bonds. ETFs are a relatively low-risk way to grow your money in the medium term but are also subject to market risk.

Mutual Funds

You can also hold mutual funds in your TFSA. These investment funds pool money from multiple investors and invest in various assets. Mutual funds are generally a safe investment, depending on the risk level of the assets. These are managed and should generate a return over the needed period.

Certain types of investments are prohibited from being held in a TFSA, such as investments in foreign entities that do not deal at arm’s length with the investor and in certain types of debt obligations.

Can You Short or Day Trade?

While you can trade stocks, bonds, and other securities in your TFSA, you cannot engage in “business activities” or “speculative trading” within your TFSA. So, for example, “short selling” is prohibited with your FHSA – as it’s speculative trading to vote against a stock.

As with the TFSA, day Trading is also prohibited as it constitutes business activity deemed taxable income.

If you do short-sell or day trade, you may be penalized, and the investment earnings within your FHSA may be considered taxable.

How to qualify for withdrawal

Now you’ll put your savings in this account for a house; how do you get it out?

To qualify for tax-free withdrawal from your FHSA, you must be a first-time home buyer with a written agreement before October 1st of the current year to buy or build, and occupy within a year, if a withdrawal is made.

You can also make the withdrawal up to 30 days after moving in.

So you have up to one year before your move-in and 30 days after to access the withdrawal tax-free.

The property has to be in Canada, and you must have equity in the property; it does not apply to leases.

If all the conditions are met, the funds can be withdrawn in full or a series of tax-free payments without impacting your income for the year.

What happens if the withdrawal doesn’t qualify?

For some reason, if you need to make a withdrawal that doesn’t qualify for emergencies or otherwise, there is no penalty, but the withdrawal is taxed as income.

If you’ve made a withdrawal and no longer qualify, you will end up paying income tax on the amount – which is why securing the property before withdrawing funds is essential.

This withdrawal also doesn’t open any contribution room. You should only make a non-qualifying withdrawal if you absolutely have to.

Can I transfer my unused FHSA to another registered account?

You can transfer your unused amounts to your RRSP on a tax-free basis, but it will be taxed on withdrawal.

Your best course of action is to withdraw your FHSA in its entirety when you qualify; this way, you won’t pay income tax on it, unlike transferring to your RRIF or RRSP.

You can’t transfer your FHSA to your TFSA as it is not a qualifying withdrawal.

Can I use the FHSA and Home Buyer’s Plan (RRSP withdrawal) together?

You cannot use the FHSA and HBP with the same qualifying home purchase. You can use them exclusively, but the purchase with the RRSP or FHSA withdrawal would be subject to 20% down payment terms.

Should I Open an FHSA in Canada?

If you are a first-time home buyer, you should absolutely leverage the benefits of the Tax-Free First Home Buyers Savings Account.

It’s another way to save your money tax-free and reduce your income tax obligations while saving for your first home.

We recommend opening an FHSA and investing in guaranteed and low-risk assets to secure your investment to save for your new pad!

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