What is a First Home Savings Account and how does it work for tax purposes?

A First Home Savings Account, or FHSA, is a federal registered plan created specifically for first-time home buyers, and it works by combining the best tax feature of an RRSP with the best tax feature of a TFSA. Like an RRSP, your contributions are tax-deductible, so putting money into an FHSA reduces your taxable income for the year you contribute. Like a TFSA, a qualifying withdrawal used to buy your first home, plus any growth the account earned along the way, comes out completely tax-free.

That dual benefit is what makes the FHSA different from either account on its own: an RRSP withdrawal is normally taxable unless you're using the separate Home Buyers' Plan, and a TFSA never gives you a deduction going in. The Income Tax Act sets both an annual contribution limit and an overall lifetime limit for FHSAs, so how much room you have depends on the current rules in place, which is worth confirming before you contribute. Opening an account and contributing regularly, even in modest amounts, is generally the most effective way to make full use of the plan over time.