Another investment option recently introduced is the first home savings account (FHSA), a tax-free registered account designed to help first-time home buyers save for a down payment. An account holder can contribute up to $8,000 a year to the FHSA, up to $40,000 over a lifetime (doubled if you're a married couple and both are first-time home buyers). As long as these funds are ultimately used to purchase your first home, deposits and withdrawals are tax-free. (Most registered accounts allow one or the other, but the FHSA allows for tax sheltering of funds paid or withdrawn.) This includes any income earned through interest, dividends or capital gains. The FHSA launched in Canada in April 2023, and is currently available through Fidelity Investments and other financial institutions.
The Canadian government already has several tools and programs for first-time home buyers, including the Home Buyers Program (HBP) and the First Home Buyer Incentive (FTHBI), so you may be wondering how the FHSA fits in. Get answers to your FHSA questions, including how first-time buyers can use these programs together.
How FHSA and HBP work together
The FHSA is a relatively new financial product, but the Home Consumer Program has been available to Canadians since 1992. An HBP is essentially a loan from your RRSP with no tax or early withdrawal penalties. Here's how it works.
If you've been saving in an RRSP (registered retirement savings plan), you can “borrow” the money to put a down payment on a qualified home purchase. The HBP withdrawal threshold was recently increased from $35,000 to $60,000, as proposed in the 2024 federal budget. The new limit applies to withdrawals made after April 16, 2024. (For more updates on HBP, visit the government's HBP webpage.)
A “qualifying home” includes many residential properties such as condos, townhomes, townhouses and detached homes, either new or pre-owned. You must be a first-time home buyer, defined as someone who has not owned a home in the past four years, and be a Canadian citizen. If you use HBP to buy your first home with your spouse or common-law partner, you will also not be able to live in a home owned by your partner during this four-year period.
Once you withdraw money from your RRSP under the HBP, you have up to 15 years to complete your HBP repayments, starting at the end of the repayment grace period (recently changed from two to five years).
Although initial reports suggested that the FHSA could not be used in conjunction with the HBP, the government has since clarified that the programs can be used together (as long as you meet all of the criteria for each program). So, if you have $60,000 available in your RRSP and $25,000 saved in an FHSA, you can put $85,000 toward a down payment on your first home with no impact on your income taxes. You will need to re-contribute the loan amount to your RRSP within the next 15 years to meet your HBP payment obligation.
But wait—there's more.
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