Want to buy a home?

You're not alone. In 2025, there's a huge pent-up demand for homes, and you might be part of the wave. However, if you haven't started saving for your deposit just yet, you'll want to start now — and the FHSA is the perfect tool.

We'll cover:

• What an FHSA is
• Its pros and cons
• How it works & eligibility
• How to minimize your taxes and fees with one
• How it stacks up against other investment vehicles

Ready? Let's go!

P.S. — Already a homeowner? You may be here because you’re interested in gifting funds to your kids’ FHSA. If you need to free up cash to help them kickstart their lives, Lotly can help! We work with over 50+ lenders across Canada to find you the best deals on home equity loans (tools that turn your property value into cash). Book a free consultation today to learn more!

An introduction to the First Home Savings Account (FHSA)

A First Home Savings Account (or FHSA account, as it may be called) is a special type of savings account designed to help individuals save money for their first home purchase. This account offers tax benefits and can be used in conjunction with other government programs, such as the Home Buyers' Plan (HBP), to make homeownership more achievable.

Here are some essential details to know about the FHSA:

• What is it? A First Home Savings Account is a type of savings account you can use to save for a first home purchase. It’s similar to a regular savings account but with added tax benefits and withdrawal restrictions.
• How does it work? Individuals can contribute up to a specific limit each year, and the money in the account grows tax-free. When it comes time to purchase a home, the funds can be used towards the down payment or other associated expenses.
• Who is eligible? To open an FHSA account, individuals must be Canadian residents above 18 and have a valid Social Insurance Number (SIN). They must also not have owned a home in the past four to five years.
• When can you open an FHSA account? FHSA accounts can be opened anytime as long as the individual meets the eligibility criteria. However, the earlier you open an account, the more time you have to save and take advantage of its benefits.

There's a lot to cover, but let's start with the pros and cons of FHSA before you decide to read on:

Pros and cons of an FHSA

Pros:

• Tax benefits: One of the most significant advantages of an FHSA is tax-free growth. The money in the account is not subject to income tax, making it an attractive savings option for those looking to save for a first home.
• Flexibility: Unlike other government programs like the Registered Retirement Savings Plan (RRSP), there are no restrictions on what you can use your FHSA funds for. As long as it's related to purchasing a first home, you can use the money as you see fit.
• Low contribution limit: With an annual contribution limit of only $10,000, the FHSA program encourages responsible and realistic saving habits. This limit prevents individuals from oversaving and potentially hindering other financial goals.

Cons:

• Limited eligibility: As mentioned earlier, not everyone is eligible for an FHSA. You won't qualify for the program if you've owned a home in the past four to five years.
• Strict withdrawal rules: While you can contribute to your FHSA account in various ways, there are specific withdrawal rules. For example, if you don't purchase a home within 15 years of opening the account, you will have to close it and transfer your savings.
• Low contribution limit: While this was listed as a pro, it can also be a con for those who want to save more for their first home.

Now that we've discussed the potential advantages and disadvantages of an FHSA, let's examine some more general information about the program.

How does an FHSA work?

An FHSA is a savings account with specific rules and benefits. Here's how it works:

1. Eligibility: To be eligible for an FHSA, you must be a Canadian citizen or permanent resident with a valid social insurance number and at least 18 years old.
2. Opening an account: You can open an FHSA at any financial institution that offers them. Different banks may have different fees and interest rates, so it's essential to do your research before choosing one.
3. Contributions: You can contribute up to $8,000 per year to your FHSA. Keep in mind; this is the total amount for all your contributions, including those made to other FHSAs in your name.
4. Withdrawals: If you end up purchasing a home, you can withdraw funds from your FHSA tax-free. However, there are specific rules around withdrawals that you must follow to avoid penalties.
5. Closing an account: If you don't use all of the funds in your FHSA within 15 years of opening it, the account will be closed. You must transfer the remaining balance to other accounts.

Now, we mentioned eligibility, but that's not the complete picture. Let's explore some more specifics.

Eligibility criteria to open an FHSA

As mentioned earlier, to be eligible for an FHSA, you must:

• Be a Canadian citizen or permanent resident.
• Have a valid social insurance number.
• Be between 18 and 71 years old.

In addition to these general eligibility criteria, you must be (perhaps unsurprisingly) a first-time home buyer. What exactly does that mean?

• You DID NOT live in a qualifying home you owned/jointly owned as a primary residence for the past five calendar years (specifically, the current calendar year plus the last 4 years).

What's a qualifying home?

• Single-family and semi-detached homes
• Townhouses
• Mobile homes
• Condominium units and apartments in duplexes, triplexes, fourplexes, or apartment buildings
• A share in a co-operative housing corporation that entitles you to own and gives you an equity interest in a housing unit

The only thing that doesn't qualify is a share where all you have is a right to tenancy in the housing unit (i.e., renting).

Alongside that condition, at least one of the following is true:

• You don't have a spouse/common-law partner when you open the account.
• If you do have a spouse/common-law partner, you didn't live in a qualifying home they owned/jointly owned as a primary residence for the previous five calendar years (as before, the current calendar year plus the last four years).

Different kinds of FHSA

There are four different kinds of FHSA to keep in mind:

1. A depositary FHSA: This is the most common type, where you make deposits with a financial institution and earn interest.
2. A trusteed FHSA:  This is similar to a depositary FHSA, except it's set up as a trust with an authorized trustee (usually with a trust company).
3. An insured FHSA:  An annuity contract, which means a licensed annuity provider insures it.
4. A self-directed FHSA: This type allows you to directly invest in different securities (e.g., stocks and mutual funds) and earn interest.

FHSA contributions, tax benefits, and withdrawals

How to contribute to your FHSA

When you open your FHSA, the maximum amount you can transfer into it (or the participation room) is $8,000. If you don't fully maximize this, any leftover participation room carries over to the next year.

Here's an example to illustrate:

• In 2025, you open your FHSA and contribute $6,000.
• In 2026, you can contribute the remaining $2,000 from the previous year's participation room in addition to the new $8,000 maximum contribution for that year — your total participation room is $10,000.
• This continues until you reach a maximum lifetime limit of $40,000 (this does not include any interest or investment gains).

Tax benefits of FHSAs

There are two main tax benefits of having a FHSA:

1. Tax-deferred growth: Any interest or investment gains earned within your FHSA are not taxed until you make withdrawals.
2. Tax-deductible contributions:  The contributions you make to your FHSA are tax-deductible, meaning they can be deducted from your taxable income when you file your taxes.
3. Tax-free withdrawals: When you withdraw money from your FHSA, it's not subject to taxation as long as it's used for eligible homebuying expenses.

Making tax-free withdrawals

You can withdraw from your FHSA at any time, in multiple installments, or all at once.

• If it's a qualifying withdrawal, you will not need to add it to your income for the tax year (i.e., your withdrawal is NOT taxed).
• If it doesn't meet the necessary criteria, you'll have to include it in your income.

What are the criteria for a tax-free withdrawal?

1. The same as the first-home buyer condition for opening an FHSA, except for one distinction — the time frame is the last 5 years MINUS the 30 days preceding the withdrawal.
2. You have a written agreement to buy/build a qualifying home such that the acquisition or construction date is before October 1 of the following year.
3. You haven't purchased the home 30+ days preceding the withdrawal.
4. You're a Canadian resident.
5. You intend to occupy the home within one year of building/buying.
6. You must fill out this form and give it to the institution issuing your FHSA.

All six need to be true for your withdrawal to be tax-free.

How to withdraw funds from an FHSA to purchase a home

Let's go step-by-step into the home buying process, with example dates starting in 2025 so you get a better idea of how it works:

1. Before October 1, 2025: You open an FHSA.
2. May 31, 2030: You have $30,000 in your FHSA and decide to withdraw it all for a home purchase.
3. August 15, 2030: You find a home you want to buy and sign the agreement with the seller.
4. September 28, 2030: Your financial institution transfers $30,000 from your FHSA to your account in preparation for the purchase.
5. October 1, 2030, or later (but before October 1, 2031): The home is officially yours!
6. By April 30th of the following year (April 30, 2031, in this case): You fill out and submit this form to the institution that issued your FHSA.
7. Once you receive your T4RSP slip from your financial institution, you'll include it in your annual tax return as a tax-free withdrawal.

And you've done it!

FHSA vs. RRSP vs. TFSA

Now, what's the difference between an FHSA, RRSP, and TFSA? While all three are investment accounts with tax advantages in Canada, they serve different purposes.

• FHSA: As we discussed, this is a special savings account for Canadians who want to save for their first home. Withdrawals for a home purchase are tax-free.
• RRSP: This stands for Registered Retirement Savings Plan and is meant to help Canadians save for retirement. Contributions made before the annual deadline can be deducted from your taxable income, reducing overall taxes. However, any withdrawals from an RRSP are considered taxable income.
• TFSA: This stands for Tax-Free Savings Account, a flexible savings account in which growth or withdrawals are entirely tax-free. The contribution limit is also higher than an FHSA, making it a popular option for saving for various financial goals, such as buying a home, going on vacation, or supplementing retirement income.

Consider your personal financial goals and situation when deciding which account is right for you. An FHSA may be the best choice if you're saving for your first home, while an RRSP or TFSA may be better if you have other long-term savings goals in mind.

Get the most out of homeownership with Lotly

Let's recap what we've covered today:

• Unlock the FHSA to supercharge your home savings with tax benefits and flexibility. Contributions grow tax-free, withdrawals for home purchases aren't taxed, and unused participation room can roll into next year.
• Know the rules: eligibility, limits, and timing are key to maximizing your FHSA. You must be a first-time homebuyer, contributions are capped at $8,000 annually and $40,000 lifetime, and funds must be used within 10 years to avoid penalties.
• Compare FHSA, RRSP, and TFSA to align savings with your goals. FHSA focuses on first-home savings, RRSP supports retirement with tax-deferred growth, and TFSA offers unmatched flexibility for diverse financial objectives.

Owning a home is an exciting milestone, but it can also be a daunting step for first-time buyers. If you’re a parent or relative trying to help fund a loved one’s first property through an FHSA, Lotly can help. We work with homeowners and over 50 lenders nationwide to find home equity loans customized to your financial situation and goals. Book a free consultation today to see if it's the right fit for you!

Frequently Asked Questions

Is an FHSA account (Canada) worth it?

It depends on your personal financial goals and situation. An FHSA can be beneficial if you’re saving for your first home due to its tax benefits and flexibility. However, an RRSP or TFSA may be better suited for your needs if you have other long-term savings goals.

What is the FHSA limit for 2024?

The FHSA limit for 2024 is currently set at $8,000 annually and $40,000 lifetime. However, these limits are subject to change depending on government policies and regulations.

What happens to FHSA after 15 years?

After 15 years, the FHSA will close, and you can no longer contribute to it. To continue growing your savings for other financial goals, transfer any remaining funds to another savings account, such as an RRSP or TFSA.

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