The FHSA: Canada’s Tax-Free First Home Savings Account

First-time home buyers have access to a savings and investment tool that can help them prepare for their initial run at the housing market: the First Home Savings Account.

Combining aspects of tax-free savings accounts and registered retirement savings plans, the FHSA is a registered account in which you can save up to $40,000 for use as the down payment on a house.

Let’s find out more about the FHSA and see if it can get you closer to your dream of buying your first home.

Who is eligible for the First Home Savings Account?

To open a First Home Savings Account, you must be:

A resident of Canada.
At least 18 years old.
A first-time home buyer.
Younger than 71 in the year you open the account.

You’re a first-time home buyer if you:

Have not lived in a home you owned in the calendar year before opening your FHSA.
Have not lived in a home you owned at any time in the preceding four years.
Don’t own property through beneficial ownership, like a corporation.

Where can you sign up for an FHSA?

You can sign up for an FHSA at:

How the First Home Savings Account works

Eligible Canadians can set up a First Home Savings Account at any financial institution that offers TFSAs and RRSPs: banks, credit unions, life insurance companies and Canadian trust companies. An FHSA should be easy to open and fairly straightforward to use.

FHSA contribution limits

You can deposit funds into your First Home Savings Account up to an annual contribution limit. In the first year you have the account, you can contribute up to $8,000. If you don’t hit the limit in any year, the unused amount carries over, which can lead to higher limits in subsequent years. Everyone faces a lifetime contribution limit of $40,000. Like an RRSP, contributions are generally tax-deductible.

You can use the money in your FHSA to purchase various investment products, like mutual funds, stocks, bonds and guaranteed investment certificates. You won’t have to pay taxes on any of the gains these investments generate — another nice perk.

Other FHSA contribution rules

In addition to the $8,000 yearly and $40,000 total contribution limits, keep these rules in mind when funding your FHSA.

Unlike with RRSPs, your annual FHSA contribution limit applies to a calendar year, and doesn’t include the first 60 days of the following year. After December 31, the contribution time for any particular year is up.

If you don’t hit your $8,000 annual FHSA contribution limit, the leftover amount carries over to the next year. If you contributed $4,000 in 2024, for example, you’ll have $12,000 worth of contribution room to work with in 2025.

You can hold more than one FHSA, but your annual and lifetime contribution limits apply as if all your accounts were a single unit. In other words, if you have two accounts, each account does not have its own $8,000 annual contribution limit.

If you go over your annual contribution limit, you’ll be taxed at a rate of 1% per month on the excess contribution amount until the excess amount is removed from your FHSA. If you don’t withdraw the over-contribution, it will be applied to next year’s total once January 1 rolls around.

You can help your spouse or common-law partner contribute to their FHSA by sharing funds with them, but whatever money you provide can’t be claimed as a deduction for tax purposes.

FHSA withdrawals

When you purchase your first home, you submit a request to your FHSA issuer that confirms your eligibility to make a qualifying withdrawal. If all’s well, you’ll receive your savings and put the full amount toward your down payment, deposit or closing costs tax-free.

Because the First Home Savings Account is designed to help home buyers, only withdrawals put toward a home purchase will qualify and receive tax-free treatment.

To make a qualifying withdrawal, you must:

Be a first-time home buyer and reside in Canada at the time of your withdrawal.
Have a written agreement to buy or build a home in Canada before October 1 in the year that follows the year of withdrawal. For example, if you plan to withdraw your FHSA funds on December 1, 2025, you’ll need an agreement in place by October 1, 2026.
Intend to use the home as your principal residence within one year of buying or building it.

Non-qualifying FHSA withdrawals will be added to your taxable income for the year in which you make the withdrawal, which could lead to an outsized tax bill. Your FHSA provider will also withhold tax on non-qualifying withdrawals..

You can, however, transfer money from a First Home Savings Account to an RRSP or registered retirement income fund without triggering taxes. Generally, these transfers won’t affect the limits for your lifetime FHSA contributions or RRSP contributions.

Will the First Home Savings Account actually help you buy a house?

That’s the $40,000 question. Answering it means weighing the FHSA’s benefits and drawbacks.

Tax advantages

The tax implications of an FHSA can be quite helpful. The deductions can create a larger annual tax refund, which can be funnelled into your FHSA and help grow it faster. The money you save by not having to pay tax on your investment gains means you keep more of your earnings.

Depending on how much your tax refund improves, you could also use it to pay down outstanding debt and improve your credit standing — all things that may help you get approved for a mortgage at a lower rate in the future

Better than the Home Buyers’ Plan?

It depends how you look at it. The Home Buyers’ Plan allows you to use up to $60,000 of your RRSP savings for a first home purchase, which would provide a larger down payment boost than an FHSA. But unlike the HBP, the FHSA doesn’t require you to repay the amount withdrawn.

There is the option of combining your FHSA with the Home Buyers’ Plan and giving your home buying budget a little extra juice. But because of the FHSA’s annual contribution limits, it’ll take time to grow your account’s balance. That may not be helpful if your RRSP is already well funded and you’d like to make use of the HBP in the next year.

Modest contribution limit

Unless housing prices fall dramatically, FHSAs won’t cover much more than deposits on pre-construction properties or closing costs in most markets. And in the five years it takes to save the full $40,000, further increases in housing prices could outpace the FHSA’s tax-saving benefits.

But if you’re determined to buy a house in five years or more, socking $40,000 away in a FHSA is arguably a better option than stashing it in a high-interest savings account or a TFSA that isn’t being used for investing. And if that first home remains elusive, you can always transfer your FHSA savings to an RRSP or RRIF and feel good about putting some money away for retirement. It’s not a bad Plan B.

The annual contribution limit is $8,000. Any amount you don’t contribute can be carried over to the following year. If you save $5,000 in an FHSA in 2025, for example, you’ll have an $11,000 contribution limit in 2026.

About the Authors

Clay Jarvis

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. Thus far, his entire professional writing career has revolved around real estate. Prior to joining NerdWallet, he was the…

Kurt Woock

Kurt Woock started writing for NerdWallet in 2021 and has covered mortgages, cryptocurrency, electric vehicles and small business software. Prior to joining NerdWallet, Kurt worked for the Colorado Public Employees'…