For first-time homebuyers in Canada, the first home savings account (FHSA) offers a powerful way to save for a down payment, combining tax-deductible contributions with tax-free withdrawals when you buy a qualifying home.
Here’s how it works, who’s eligible, and what happens to your FHSA if life takes an unexpected turn.
What Is a First Home Savings Account?
A first home savings account is a registered plan that lets first-time buyers:
- Deduct contributions from taxable income (like an RRSP)
- Grow investments tax-free while saving
- Withdraw funds tax-free when buying a qualifying home
You can contribute up to $8,000 per year, to a maximum lifetime limit of $40,000. Unused room carries forward.
Who Can Open a First Home Savings Account?
To qualify for a First Home Savings Account, you must:
- Be between 18 and 71 (or legal age in your province)
- Be a Canadian resident
- Not have owned and lived in a home (or had a spouse who did) during the current or previous four calendar years
How to Open a First Home Savings Account?
You can open one or more First Home Savings Accounts through a bank, credit union, trust company, or insurance provider. You’ll need:
- Your SIN and birthdate
- Documents to confirm eligibility
- Optional: name a beneficiary on the account
You can choose between different types of FHSAs:
- Depositary FHSA: holds cash, GICs, and term deposits
- Trusteed FHSA: allows mutual funds, bonds, stocks, etc.
- Insured FHSA: structured as an annuity
- Self-directed FHSA: for managing your own investments
Contribution and Transfer Rules
- Annual limit: $8,000
- Lifetime limit: $40,000
- RRSP transfers: Allowed but not deductible
- Exceeding the limit: Triggers a 1% monthly penalty on the excess
You must track contributions carefully across all accounts, even if you hold more than one FHSA.
Withdrawing to Buy a Home
When you’re ready to buy a qualifying home, you can make a tax-free withdrawal if you meet the following:
- You are still a resident of Canada
- You are a first-time buyer
- The home is a qualifying principal residence
Life Happens: What to Know About FHSAs and Major Events
1. Breakdown of a Relationship
If your marriage or common-law partnership ends, you may transfer FHSA property to your former spouse’s FHSA, RRSP, or RRIF without tax consequences, but only if:
- The transfer is under a court order or legal agreement, and
- The amount transferred doesn’t exceed the value of your First Home Savings Account minus any excess
This must be a direct transfer (Form RC723). Withdrawing funds yourself and giving them to your spouse will result in tax penalties.
You can open a new FHSA after the breakdown, as long as you meet the usual eligibility criteria.
2. Death of the Account Holder
After an FHSA holder passes away:
- No further contributions or transfers are allowed.
- Funds may go to a designated beneficiary or the estate.
- A surviving spouse or partner may become a successor holder if designated, and can either:
- Transfer the funds to their RRSP or RRIF (tax-free), or
- Withdraw the funds (taxable)
If no successor is named, beneficiaries will receive the remaining value and must include it as income, with withholding tax applied. This is reported on a T4FHSA slip.
Accounts must be closed by the end of the exempt period (the year following death), or they lose First Home Savings Account status.
3. Non-Resident Status
If you move out of Canada after opening an First Home Savings Account:
- You can no longer make qualifying withdrawals to buy a home.
- Any withdrawals will be subject to 25% withholding tax, unless reduced by treaty.
- You cannot make new contributions while a non-resident.
Non-residents receive an NR4 slip for tax reporting.
Tax Reporting Requirements
Every year you must file Schedule 15 with your income tax return to report:
- Contributions
- Transfers
- Withdrawals
Your financial institution will provide a T4FHSA slip summarizing your activity.
Final Thoughts
The first home savings account is a smart savings tool for Canadians trying to enter the housing market. Whether you’re planning your first down payment, managing a relationship change, or dealing with estate matters, understanding how the FHSA works can help you avoid costly tax surprises.
If you’re thinking about buying your first home, or you’re navigating a life event that may affect your First Home Savings Account, the real estate and estate planning lawyers at Clark Woods LLP can help.
📞 Contact us today to get trusted legal guidance for your next step.
