10 Things You Should Know About the First Home Savings Account (FHSA)

Published On: February 21, 2024Categories: Insights

Hoping to fund education, pay for your next vacation, or enjoy your retirement years? Canadian investors can choose from several registered account types to help them reach their specific financial goals.

The newest of the bunch — the First Home Savings Account (FHSA) — is designed to give a leg up to Canadians hoping to enter the residential real-estate market. With plenty of tax advantages and relative flexibility, the FHSA is already being recognized as a powerful wealth-building vehicle whether you plan to purchase a home or not.

Here, we answer 10 questions investors should know about the account. 

Who can open an FHSA?

Taxpayers between 18 and 71, living in Canada, who have not owned a home within the last four years, are eligible for opening an FHSA. However, if you are married, your spouse must have also not previously or currently owned a home within the same period.

How much can I contribute to an FHSA?

You can contribute $8,000 per year, up to a lifetime limit of $40,000. Your contribution room starts accumulating the year you open the FHSA, which is one reason to consider opening an account as soon as possible.

What are the main benefits of an FHSA?

FHSAs combine the best features of Canada’s two most popular registered accounts. Contributions to an FHSA can be used to reduce your taxable income, like in a Registered Retirement Savings Plan (RRSP). Meanwhile, qualified withdrawals are completely tax-free, like in a Tax-Free Savings Account

What investments can I hold in my FHSA?

You can hold cash, mutual funds, exchange-traded funds (ETFs), publicly traded stocks, bonds, guaranteed income certificates (GICs), and some private real estate investment trusts (REITs) in an FHSA.

Can I hold real estate in my FHSA?

Real estate is not permitted in an FHSA. However, some private REITs, like Equiton’s private real estate investment Funds are eligible. This is a great option if you’d like to use a registered account to invest in real estate before you step onto the property ladder.

When can I withdraw from my FHSA?

You may make a tax-free withdrawal from an FHSA to purchase a qualifying home. To do so, you must have a written agreement to purchase or build a home before October 1 the year after you make a withdrawal. Already made a purchase? You can still tap into your FHSA within 30 days.

Can I use my FHSA with the Home Buyer’s Plan?

The Home Buyer’s Plan lets you withdraw up to $35,000 from your RRSP to buy or build a qualifying home. For even more saving power, if you meet the conditions, you can withdraw from your RRSP and make a qualifying withdrawal from your FHSA for the same qualifying home purchase.

Do I have to buy a home with my FHSA?

Opening an FHSA does not constitute an obligation to eventually purchase a home. In fact, you can redirect your home savings to retirement savings/ accounts, under certain conditions.

Can I transfer my FHSA to another account?

You may transfer your FHSA, tax-free, to an RRSP, Registered Retirement Income Fund (RRIF) or another FHSA. You will not, however, regain FHSA contribution room by doing so. If you’ve already maxed out your RRSP contributions, don’t worry. Moving funds to an RRSP lets you exceed your contribution limit by the transfer amount.

When do I have to close my FHSA?

You can keep an FHSA open for a maximum of 15 years up until the year you turn 71. At this point, if you don’t buy a home or have funds left over from a purchase, you must close the account or transfer your funds to an RRSP, RRIF or another FHSA. Any leftover funds will be subject to tax.

Reach your investment goals, whatever they are

Canadians hoping to purchase a first home face numerous challenges ranging from high interest rates and inflation, to an ongoing housing crisis and low home affordability. With these factors in mind, it is even more important to make wise investment decisions today to ensure you can achieve your goals down the line. Connect with a financial advisor to help decide if an FHSA or other registered savings account is right for you.

Equiton’s investment specialists can assist you in learning more about the benefits of investing in private real estate and how best to incorporate private real estate investments into your FHSA to enhance your financial future.