Overview of the First Home Savings Account (FHSA)
The First Home Savings Account (FHSA) is a registered account introduced to help eligible individuals save toward the purchase of a first home. The account has specific rules and limitations that differ from other registered plans, which can sometimes lead to misunderstandings.
Below is a summary of common misconceptions about the FHSA, based on publicly available information from the Canada Revenue Agency (CRA).
1. Myth: FHSA Contributions Can Be Made Until February 2025 for the 2024 Tax Year
Reality: FHSA contributions must be made by December 31, 2024, to be deductible for the 2024 tax year. Unlike RRSPs, FHSA contributions do not have a grace period extending into the following year.
2. Myth: Unused Contribution Room Can Be Carried Forward Indefinitely
Reality: Unused FHSA contribution room can only be carried forward if the account has already been opened. Contribution room accumulates annually after the account is opened, subject to the annual and lifetime limits.
3. Myth: FHSA Withdrawals Can Only Be Used to Buy a House
Reality: FHSA withdrawals may be made for purposes other than a qualifying home purchase; however, non‑qualifying withdrawals are generally included in taxable income. Only qualifying withdrawals related to an eligible home purchase receive tax‑free treatment.
4. Myth: You Can Open an FHSA Without Planning to Buy a Home
Reality: To open an FHSA, an individual must meet specific eligibility criteria, including not having owned a qualifying home in the current year or the previous four calendar years. Additional rules apply to the use and eventual disposition of FHSA funds. If you don’t use the funds for a qualifying home purchase, you must transfer the funds to an RRSP or RRIF by the end of the 15th year after opening the account or by the year you turn 71, whichever comes first.
5. Myth: Opening an FHSA Automatically Maximizes Your Contribution Room
Reality: Simply opening an FHSA does not mean you can immediately contribute the lifetime limit of $40,000. Contributions are capped at $8,000 annually, and you cannot carry forward unused room until the account is opened. If you delay opening the account, you may lose the opportunity to maximize your contributions for that year.
6. Myth: You Can Transfer RRSP Funds into an FHSA Without Impacting FHSA Limits
Reality: While you can transfer funds from an RRSP to an FHSA without triggering taxes, the transfer does count toward your FHSA’s annual and lifetime contribution limits. This transfer flexibility does not create additional contribution room. The only benefit of such a transfer is that you may not need to repay the FHSA over 15 years, like RRSP Home Buyer Plan withdrawals.
Final Thoughts
The FHSA has specific rules regarding eligibility, contributions, withdrawals, and transfers. Understanding these rules is important when reporting FHSA activity on a personal tax return.
For official guidance, individuals should refer directly to CRA publications and administrative guidance related to the FHSA.
Disclaimer: The information provided on this page is for general informational purposes only and is based on publicly available information from the Canada Revenue Agency (CRA). It does not constitute tax advice and should not be relied upon as such. Tax legislation and administrative policies are subject to change.
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