Understanding FHSAs
More ways for you to save for a downpayment on your first home
July 3, 2024 
5 minute read
More options are available to first time home buyers who are concerned about the cost of affording a home. By saving consistently over time and taking advantage of both an FHSA and an RRSP, Canadians now have more tools in their back pocket to realize their dream of homeownership. Plus, Coastal Community experts sit down with you to set realistic, achievable goals for your downpayment—a great benefit of being a credit union member. Read on to learn more about your latest savings tool, the FHSA.
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What is an FHSA?
The First Home Savings Account (FHSA) is a government registered plan that was introduced to Canadians in 2023. An FHSA helps you save up to $40,000 for your first down payment on a home, tax-free.
Download a guide to understanding the FHSA.
How can the FHSA help me buy a home?
Your FHSA can give you a real boost towards buying your first home. Here are the top benefits of an FHSA:
- Save for your down payment faster!
- Combine FHSA savings with RRSP home buyer’s plan
- Use your FHSA to help with your mortgage approval
- Parents can gift funds to their child’s FHSA
- Grow your savings tax-free in your FHSA, even if you never purchase a home
Support Habitat for Humanity with an FHSA
For a limited time, Coastal Community will donate $50 to Habitat for Humanity when you open an FHSA and contribute $8,000 in the first year.
How does an FHSA work?
Let’s look at John’s experience. John lives in Nanaimo earning $50,000 a year and wants to save for his first home. He learns that the FHSA can help him save up to $40,000 for his downpayment, and he won’t have to pay taxes on interest he earns as those savings grow. Over the next five years, John contributes $8,000 to his FHSA per year (the maximum allowed). He’s happy to see his money grow by over $6,000 tax-free, and he’s excited to learn he’s earned $11,165 in tax savings based off his annual income!**
| Income tax savings based on $50,000 income | $11,165 |
| Tax-free interest earned in five years – since John maximized his contributions and earned 5% in interest over that time | $6,415 |
| Total value of John’s savings in five years | $57,580 |
**The calculations provided are for illustrative purposes only.
After saving for his first home for five years, and with the advantages of an FHSA, John was able to save $57,580 – that’s $17,580 more than he contributed from his paycheque! He’s ready to take the next step towards buying his first home. What’s John’s next step?
MORTGAGE CASHBACK
Get up to $3,000 cash back with a mortgage from Coastal Community!
For a limited time, get up to $3,000* cash back when you transfer a mortgage to Coastal Community or take out a new mortgage with us.
*Some conditions apply
RRSP, TFSA, FHSA — what’s the difference?
Each registered plan offers you a variety of features and benefits. Here’s how each plan can help you:
| FHSA | RRSP | TFSA |
| Use your FHSA to save for your first home | Use your RRSP to save for retirement, education or your first home | Use your TFSA to save for any goal you can dream up! |
| You don’t need taxable income to accumulate contribution room1 | You will need taxable income to accumulate contribution room in your RRSP | You don’t need taxable income to accumulate contribution room |
| FHSA contributions are tax deductible | RRSP contributions are tax deductible | TFSA contributions are not tax deductible |
| Withdrawals are tax-free if you’re using the funds to buy a qualifying home | Withdrawals are taxed in the year you make them2 | Withdrawals are tax-free any time and for any purpose |
| You can contribute to your FHSA for up to 15 years between the ages of 18 to 71 | You can contribute up until the end of the year you turn 71 | You can start contributing at age 18 |
1 You’ll need to open an FHSA first in order to start accumulating contribution room.
2 Except if your withdrawal is made as part of the Lifelong Learning Plan (LLP) or Home Buyer’s Plan (HBP), which will not be taxed as long as you repay the plan within the required time.
FAQ – Frequently Asked Questions
What is an FHSA?
The First Home Savings Account (FHSA) is a government registered plan that was introduced to Canadians in 2023. An FHSA helps you save up to $40,000 for your first down payment on a home, tax-free.
How do I open a First Home Savings Account with Coastal Community?
Drop by a branch or give us a call to set up your FHSA. Don’t hesitate to get started, because as soon as you open your FHSA you can start building your contribution room. Book an appointment today!
How does an FHSA work?
You can contribute up to $8,000 each year to an FHSA, then use your savings to purchase a home and lower your taxes. You’ll need to be 18 or older, have a social insurance number (SIN) and have not owned a home in the last four years.
Is the First Home Savings Account tax deductible?
Yes, the contributions you make to your FHSA will help reduce your taxable income each year.
Will I have to pay tax when I withdraw money from my FHSA?
Withdrawals you make from your FHSA will not be taxed as long as you meet certain requirements, as listed here:
1 "qualifying home" is defined as a housing unit located in Canada. This definition also includes the circumstance where you buy a share of the capital stock of a co-operative housing corporation where, as the holder of the share, you’re entitled to own a housing unit located in Canada.
- You plan to live in the home within a year of buying or building it.
- You’re a Canadian resident from the time of the withdrawal to the point of buying the home.
- You get a written agreement to buy or build a qualifying home1 by October 1 of the year after you make the withdrawal from your FHSA.
1 "qualifying home" is defined as a housing unit located in Canada. This definition also includes the circumstance where you buy a share of the capital stock of a co-operative housing corporation where, as the holder of the share, you’re entitled to own a housing unit located in Canada.
How much money can I put in my FHSA each year?
You can contribute $8,000 a year to your FHSA, for up to 15 years. The total amount you can contribute to your FHSA over your lifetime is $40,000. The great news is you can also carry forward your unused contribution room. This means that if you open an FHSA and don’t contribute the full annual limit, you can save more in your FHSA the next year. For example, you open an FHSA, but only contribute $2,000 in the first year. In the following year, your FHSA contribution limit will be $14,000 ($6,000 from the first year plus $8,000 for the current year). You can calculate your unused FHSA contribution room at the end of the first year as:
- Your FHSA participation room for the first year ($8,000) minus all new contributions to your FHSAs and transfers from your RRSP to your FHSA in the first year.
Is an FHSA right for me?
When you open a First Home Savings Account, you can save faster for a down payment on your first home. An FHSA is also great for:
- Longer-term goal – If you’re not looking to buy a home for a while, you can continue to grow your savings in an FHSA for up to 15 years, tax-free. If you don’t end up buying a home after that, you can transfer your FHSA funds into your RRSP and save for retirement.
- Higher taxable income – If you’re in a higher tax bracket and want to reduce the amount you owe.
- Non-essential savings – If you aren’t going to need access to the funds before buying a home.
Can I combine my FHSA with the Home Buyer’s Plan?
Yes, you can use both your FHSA and your RRSP to purchase your first home. You can withdraw up to $60,000 from your Registered Retirement Savings Plan (RRSP) through the Home Buyer’s Plan (HPB) and up to $40,000 (plus any interest you’ve earned) from your FHSA, tax-free, to buy your first home.
Remember, you’ll need to re-contribute your HBP withdrawal to your RRSP within 15 years.
The FHSA doesn’t have any repayment requirements.
Can I transfer money from my retirement savings plan to my FHSA?
Yes, you can transfer money from your Registered Retirement Savings Plan (RRSP) to your FHSA tax-free. Make sure you don’t go over the annual limit for your FHSA ($8,000 plus any previous unused contribution room) or lifetime limit ($40,000).
You should also be aware:
- Transferring funds between your registered plans will not give you a tax deduction.
- You won't be able to re-contribute the transferred amount to your RRSP. That contribution room will be lost.
Other Topics to Explore:
Getting Ahead in the Home-Buying Game Buying Your First Home TFSA vs RRSP
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