The First Home Savings Account: A Smarter Way to Save for Your First Home

Buying a home in Canada is a major milestone, but for many, the biggest challenge is saving for the down payment. The federal government introduced the First Home Savings Account (FHSA) to help address exactly that issue.

The FHSA is a unique program because it combines the best features of both the RRSP and the TFSA. Contributions reduce your taxable income, while withdrawals used for a qualifying first home purchase are completely tax-free.

Who qualifies for the FHSA?
You are considered a first-time homebuyer if:

• You do not currently own a home.
• You haven’t lived in a home you owned (or your spouse/common-law partner owned) in the last four years.
• This means that even if you previously owned, you may still qualify if you’ve been renting during that period.

Contribution limits and tax benefits
You can contribute up to $8,000 per year, with a lifetime maximum of $40,000.

• Unused contribution room carries forward.
• Contributions are tax-deductible, just like RRSPs.

Example: a couple in Ontario
Lisa and Mark earn a combined $150,000 per year. Each contributes $8,000 into their FHSA in 2024. Together, they’ve reduced their taxable income by $16,000.

With Ontario’s combined federal and provincial tax brackets, this could mean thousands of dollars in tax savings - money that can be used to further boost their down payment or cover closing costs.

When they’re ready to buy, withdrawals are tax-free as long as they’re used for a qualifying home purchase.

How it compares to other tools

• RRSP Home Buyers’ Plan (HBP): lets you withdraw funds from your RRSP but requires repayment.
• TFSA: withdrawals are tax-free but contributions aren’t deductible.
  FHSA: offers both deductibility and tax-free withdrawals, making it arguably the most powerful tool for first-time buyers.
  

Strategy tips

• Open the account early, even if you can’t max it out right away. The earlier you start, the more room you can carry forward.
• Combine it with your RRSP or TFSA for layered savings.
• If you don’t end up buying, you can transfer the funds to your RRSP without penalty.

Final thoughts
The FHSA represents a meaningful opportunity for Canadians to accelerate their path to homeownership. By lowering taxes today and protecting savings for tomorrow, it provides both short-term and long-term benefits.

If you’re considering your first purchase, or if you’re returning to the market after years of renting, the FHSA should be on your radar.

Book a call at www.mortgagecall.ca or email [email protected] to explore how this could fit into your strategy.