Understanding the Tax-Free First Home Savings Account

Whether you are fresh out of college looking for a place to live or growing your family, you’ve probably noticed that it’s much more difficult to purchase a home nowadays. Data shows that the average house price went up 2.4% in 2022 with inflation rising 6.5%.

These trends have continued into 2023, with many homeowners reluctant to sell because of high interest rates. The Government realizes the adverse impacts the economic situation has had on home buyers, which is why they rolled out a new program called the First Home Savings Account.

What is the Tax-Free First Home Savings Account?

On November 4, 2022, the First Home Savings Account (FHSA) program was signed into law, with a tentative start date of April 1, 2023. This program works similar to TFSA and RRSP accounts with first-time homebuyers able to save up to $40,000 tax free. In addition, any income earned within this account is tax-free.

Who Qualifies for the FHSA?

To be eligible to contribute to an FHSA, you must be a resident of Canada, at least 18 years of age, and be a first-time home buyer. A first-time home buyer means that you have not owned a dwelling that served as your principal residence for the preceding four calendar years.

What are the Contribution Limits?

Contributions are limited to a lifetime value of $40,000. Furthermore, you cannot contribute over $8,000 in any one year, but you can carry over contribution room to future years. For example, if you open an FHSA in 2023 and only contribute $4,000, you can contribute up to $12,000 in the following tax year. You are permitted to have more than one FHSA account, but you are still capped at the $40,000 lifetime contribution limit.

There are penalties for overcontributing to FHSAs. Similar to TFSAs and RRSPs, the CRA imposes a monthly 1% penalty on overcontributions. To remedy the penalties, you can either wait until the next tax year and use the overcontributed amounts on the new contribution room or you can withdraw the amounts.

Withdraws can be transferred to an RRSP tax-free, but the contributions are not deductible on your tax return. Otherwise, you can take a taxable withdrawal. Moreover, you are able to defer contribution deductions until future years.

What Happens if You Don’t Purchase a Home?

If the funds aren’t used to purchase a qualifying home by the end of the 15th year the plan was opened or before you reach age 71 years old, the CRA requires you to withdraw the money. You can transfer the funds to an RRSP or RRIF without any tax implications.

However, in some situations, you may choose to withdraw the funds outright. Any income earned within the account will need to be reported as taxable income. In addition, your initial contribution amounts may need to be picked up as income as well. This makes it important to reach out to a qualified accountant that can minimize your tax burden if you do decide to withdraw funds from your FHSA.


Does it sound like you can benefit from using an FHSA? If so, great! This is another savings avenue that should be leveraged to ease the financial burden of purchasing a home.

Whether you are trying to maximize your tax deductions or are confused about how much contribution room you have left, it’s important to reach out to the team at NRK Accounting. We can walk you through the information you need to know to fully leverage this new program.



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