What Is a First-Time Home Buyer Savings Account in Canada?

When people ask about a first-time home buyer savings account, they usually mean the First Home Savings Account, or FHSA. It was designed for people saving toward a first home, and it works differently from an everyday savings account.

This article explains what the account is, how it compares with using your RRSP through the Home Buyers' Plan, and which limits and Ontario costs are worth knowing as you plan your purchase.

The short answer

An FHSA is a registered plan that lets a first-time home buyer save tax-free for a qualifying first home, up to set limits. To open one you must be a Canadian resident, at least 18 (19 in some provinces and territories), not older than 71 at December 31 of the year you open it, and a first-time home buyer.

You open it with an issuer such as a bank, credit union, or trust or insurance company. In general terms, it combines a tax deduction on the way in with tax-free withdrawals on the way out, provided the money is used for a qualifying home.

How it compares with an RRSP and the Home Buyers' Plan

Many buyers already have an RRSP. The federal Home Buyers' Plan lets you withdraw from it for a first home, but the two routes work differently.

The FHSA is built around a first home, which is why it has its own opening test and withdrawal conditions. If you want to compare it with your TFSA or other savings, an accountant can help you weigh the options for your situation.

You can use both routes for the same home, provided you meet all the conditions at the time of each withdrawal. HBP repayments cannot be made with FHSA funds.

Limits you need to know

The annual limit is $8,000, including the year you open your first FHSA, and the lifetime limit is $40,000, across all of your FHSAs combined. Unused room carries forward up to $8,000, so the most you can contribute in one year is $16,000, and the carry-forward does not raise the lifetime limit.

Over-contributing triggers a tax of 1% per month on the highest excess amount in that month.

The account has a lifespan. It must be closed by December 31 of the earliest of the 15th anniversary of opening your first FHSA, the year you turn 71, or the year after your first qualifying withdrawal.

Who counts as a first-time buyer, and what Ontario adds

For opening an FHSA, you are a first-time home buyer if you did not live in a home you owned, alone or jointly, as your principal residence in the current calendar year before opening or in the preceding four calendar years. A spouse or common-law partner's ownership in that period also counts against you.

Ontario land transfer tax has its own first-time rules. The provincial refund is up to $4,000, and no land transfer tax is payable on the first $368,000 of value for eligible homes. To qualify you must be at least 18, occupy the home as your principal residence within nine months of the transfer, and never have owned an eligible home anywhere in the world. For agreements after November 14, 2016, you must also be a Canadian citizen or permanent resident.

• A spouse who owned an eligible home while your spouse can disqualify both of you.
• A co-buyer who does not qualify reduces the refund proportionately.
• The refund is claimed at closing on electronic registration, or by Refund Affidavit (form 013-0300) for paper registration.
• If it was missed, you pay the tax on registration and apply to the Ministry of Finance within 18 months after registration.

Note that the FHSA test and the Ontario refund test are different. Toronto also has its own municipal land transfer tax, so ask your lawyer how it applies to your purchase.

What to do next

Saving is only one part of buying. Lenders look at your down payment, and CMHC says the minimum is 5% of the first $500,000 of price plus 10% of the portion above $500,000, with gifts from immediate family and RRSP withdrawals acceptable sources. A mortgage pre-approval is an estimate only and does not guarantee approval.

• Confirm you meet the age, residency and first-time buyer tests.
• Decide whether an FHSA, the HBP, or both fit your plan.
• Track contribution room across every account.
• Ask a lender about your down payment sources and pre-approval.
• Have a real estate lawyer review your agreement and explain land transfer tax and any refund before closing.

Frequently asked questions