A First Home Savings Account (FHSA) guide for Canadians

• You have a yearly contribution limit of $8,000 and a lifetime limit of $40,000. This means you could reach your total contribution limit in five years if you deposited the maximum amount each year.
• If you overcontribute to your FHSA, you’ll be subject to a 1% tax on the excess money until you either withdraw it or a new year begins. Then the overpayment is applied to the new contribution year.
• When the FHSA was first proposed, you could not carry forward unused contribution room. Now, however, if you don’t max out your yearly contribution, you can carry it forward to the next year. For example, if you contributed $6,000 in the first year, you can carry the remaining $2,000 over to the next year and contribute $10,000 ($8,000 + the $2,000).
• You can have more than one FHSA but the total amount you contribute can’t exceed both the yearly and total amounts.
• You can have an FHSA for a maximum of 15 years, or until you turn 71. After that, the money in your FHSA must be transferred to either an RRSP or RRIF, depending on your age. If you transfer it to an RRSP, it will not take up any contribution room.
• You can transfer funds tax-free from your existing FHSA to another FHSA in Canada, RRSP, or RRIF.
• While initial legislation would have prevented Canadians from using both the FHSA and Home Buyers’ Plan for the same home purchase, the government has since revised the rules to allow for this. This means you can combine your HBP withdrawal (which has a limit of $35,000) and your FHSA withdrawal to buy your first home. Keep in mind, however, that with the HBP, the funds need to be repaid within 15 years.
• Each person in your household can have an FHSA, so if you’re purchasing a home with a partner or spouse, this means that as long as it’s each partner’s first home, you both could tap your respective FHSAs for the purchase. This would give you access to up to $80,000.
• You won’t pay taxes on interest or capital gains gained on investments in an FHSA, and you get a tax deduction based on your yearly contributions. However, you may get taxed if you withdraw the money from your FHSA for any other reason than buying a home.

The RRSP

• An RRSP is a registered government plan to help Canadians save for their retirement. You can open an RRSP when you turn 18 and contributions create a deduction that can reduce your taxable income.
• RRSPs must be converted to a Registered Retirement Index Fund (RRIF) the year you turn 71.
• Any withdrawals from an RRSP or RRIF are taxed at your marginal tax rate. And if you withdraw under the HBP you must pay the funds back.
• You can carry forward any unused contribution room.

The TFSA

• The TFSA was also set up to help Canadians save but it isn’t explicitly targeted toward saving for retirement or buying a first home. Instead, it’s a tool to save for short-, medium-, and long-term goals, that may include retirement, a vacation, or buying a home.
• You don’t pay taxes on any interest earned.
• A TFSA doesn’t offer any tax deduction but there is no tax penalty for withdrawing money and you don’t have to pay it back.
• Unused contribution room for TFSAs carries forward.

The FHSA

• FHSAs offer a tax deduction for contributions.
• There is no tax penalty for withdrawals if you use it to buy a home.
• The FHSA must be unwound after 15 years.
• Unused money can be contributed to your RRSP without using any carry forward room.