FHSA – Understanding the CRA’s Rules
The Canada Revenue Agency (CRA) has been providing answers to potential contributors regarding the FHSA, a tax-free first home savings account (FHSA), since its launch in 2023. The FHSA allows Canadians to contribute $8,000 per year, up to a lifetime limit of $40,000, to save on a tax-free basis towards the purchase of a first home in Canada. It provides a tax deduction for contributions, no tax on the account’s income and growth for up to 15 years, and allows for the tax-free withdrawal of all contributions, investment income, and growth earned when used to buy a first home.
To open an FHSA, one must be a resident of Canada, at least 18 years of age, and a first-time homebuyer. The FHSA can remain open for up to 15 years or until the end of the year one turns 71. Any funds not used to buy a qualifying home by this time can be transferred on a tax-deferred basis into a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF), or withdrawn on a taxable basis.
The CRA has also addressed situations where one spouse or partner already owns a home. For example, Nicolas, who opened an FHSA in September 2023 and contributed $8,000, can withdraw $16,000 tax-free from his FHSA to fund the down payment. The CRA has also addressed scenarios where an individual with an FHSA wants to make a qualifying tax-free withdrawal to purchase a home jointly, with one or more people.