In 2023, Canada launched the FHSA (Tax-Free First Home Savings Account), a new financial tool designed to help first-time home buyers save up to $40,000 tax-free. Think of it as a hybrid between the RRSP and TFSA: you get the tax-deductibility of an RRSP when you contribute, and you can withdraw your funds tax-free, like a TFSA, when you’re ready to buy your first home.

The FHSA allows contributions up to $8,000 per year, with any unused contribution room carrying forward (but only if you’ve opened the account). If you don’t find your dream home or don’t end up buying, you can roll those funds over into your RRSP or RRIF. And to sweeten the deal, you can use both the FHSA and the Home Buyers’ Plan (HBP) for the same property, meaning you can access up to $75,000 plus growth in capital if you’re maxed out.

There are some rules governing the FHSA. First, it doesn’t last forever. You have to close it by December 31 of the year you turn 71 or within 15 years of opening it—whichever comes first. If you haven’t bought a home by then, you can transfer the savings tax-free into your RRSP or RRIF. You can also close the FHSA and withdraw the funds, but the funds would be deemed income and taxed accordingly and be subject to a withholding tax.

Also, be sure you’re not accidentally over-contributing—there’s a 1% monthly penalty on excess contributions. And don’t plan on using this account for day-trading—keeping it simple with stable, long-term investments is the way to go, as the CRA might tax any “business activity” in the FHSA.

With today’s rising housing prices and the unprecedented wealth transfer between generations, we’re dedicated to helping our clients support their children’s (and grandchildren’s) first home purchase in a way that fosters independence, and the FHSA is an ideal tool to support that goal.

Learn more about the FHSA by reading this article published by our Family Office Services team