First Home Savings Account: The Complete 2024 Guide

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Written By Mr Loonie
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Disclaimer: this post contains an affiliate link for Qtrade Direct Investing. Loonies and Sense may may receive financial compensation if you later become a Qtrade client.

A first home purchase is a significant milestone for many Canadians, representing stability, security, and a sense of achievement. To make first homeownership more accessible, the Canadian government introduced the First Home Savings Account (FHSA) program in April 2023. This blog article provides a comprehensive guide to help you understand the Canadian First Home Savings Account, its benefits, eligibility criteria, financial institutions that currently offer accounts, and how it can help Canadians achieve their dream of owning their first home.

We will also round up the latest news on which financial institutions currently offer FHSAs and any special offers they have!

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What is the First Home Savings Account?

The Canadian First Home Savings Account (FHSA) is a government-backed savings initiative designed to assist individuals in saving money for their first home purchase. Like an RRSP, the FHSA offers specific tax advantages to encourage Canadians to make contributions to save for their future home. Like a TFSA, withdrawing from a FHSA is tax-free within the guidelines. By participating in this program, prospective homebuyers can grow their savings faster and enhance their financial preparedness to enter the real estate market.

Key Benefits of the First Home Savings Account

  • Tax Deductible Contributions: Contributions made to the FHSA are tax-deductible. Meaning that the amount deposited in the account can be deducted from the individual’s taxable income, resulting in potential tax savings. However, there are annual contribution limits, so it’s essential to be aware of those to avoid exceeding them.
  • Tax-Free Growth: One of the primary advantages of the FHSA is that the savings grow tax-free. Interest earned and capital gains on investments held within the FHSA are not subject to taxation, providing a significant boost for individuals to maximize their savings.
  • Tax-Free Withdrawal: When you are ready to buy a home, the withdrawal from the FHSA is tax-free including any savings or investment gains that you have made.
  • Compounded Savings: Over time, the savings or investments in the FHSA can compound, helping potential homebuyers build a substantial down payment for their first home.

Eligibility Criteria for the First Home Savings Account

To participate in the Canadian FHSA program, individuals must meet specific eligibility criteria:

  • Over The Age of Majority: The minimum age to open an FHSA is the Age of Majority in your province or territory to open an account. See the table below for details.
  • Canadian Citizen or Permanent Resident: Only Canadian citizens and Permanent Residents are eligible to open and contribute to an FHSA.
  • First-Time Homebuyer: The account holder must be a first-time homebuyer. This means they, or their legal partner, have not owned a home in the past four years.
  • Age Limit: There is a maximum age limit for opening an FHSA. Individuals must be under 71 years old to participate.
  • Residency Requirements: To maintain the FHSA benefits, account holders must remain a tax resident of Canada.
  • Owner Occupied: The home must be occupied as the principal residence. You cannot buy an investment property and rent it out with the FHSA. You have one year from withdrawal of money from your FHSA to occupy or build your home.
18-years old inAB, MB, ON, PEI, QC, SK
19-years old inBC, NB, NF, NWT, NS, NU, YK
Minimum age to open an FHSA by Province/Territory

Note that the First Home Savings Account is an individual account per taxpayer. You cannot open a joint FHSA, and if you contribute to your partner’s FHSA, you will not be able to claim the tax credit yourself.

Types of First Home Savings Account

There are three different types of basic FHSA account, which depend on both the financial institution you open the account with, and your investment objectives:

  • Depositary FHSA
    • an account (with a financial institution) that holds cash, term deposits, or guaranteed investment certificates (GICs)
  • Trusteed FHSA
    • a trust (with a trust company as trustee) that holds qualified investments such as money, term deposits, GICs, government and corporate bonds, mutual funds, and securities listed on a designated stock exchange
  • Insured FHSA
    • an annuity contract (with a licensed annuity provider)

In addition, a FHSA can also be “self-directed” meaning that the person who owns the account makes the investment decisions on an on-going basis.

Check with the financial institution you are opening your account with as to what type of investments can be made in the account. Do not, for example, assume that all FHSA accounts can hold stocks or ETFs. For a list of all financial institutions offering FHSAs, see the next section.

Opening an First Home Savings Account in 2024

Not every financial institution is currently offering FHSAs. Check with your preferred financial institution to see if they are. Here is our extensive round-up of financial institutions currently offering FHSAs:

Qtrade’s FHSA is an investment (i.e. stock market) based account. You can invest in stocks, mutual funds, bonds, and ETFs to build the wealth within your FHSA to buy your first home.

There are a few of reasons why we love Qtrade’s approach to the FHSA:

  • They were rated #1 by Surviscor in their recent rankings of best desktop brokerage in Canada.
  • You can trade for free in over a hundred of ETFs including BlackRock’s excellent iShares XEQT asset allocation ETF.
  • Their customer support is excellent — you’ll speak to a real human, located in Canada, quickly.

If that wasn’t enough to tempt you, you’ll earn $50 for signing up for a FHSA through Loonies and Sense and up to an additional $150 once you fund the account with at least $1,000. That’s an extra $200 towards your home ownership future!

To take advantage of this offer, please click the banner below.

EQ Bank First Home Savings Account

EQ Bank are offering a traditional savings account FHSA (which pays 3.0% interest at the time of writing). For a slightly high return, you can also choose their GIC powered account, and GIC returns may change over time.

WealthSimple First Home Savings Account

WealthSimple has two offerings that both act like investment accounts. One is a managed account, and the other is self-directed.

For the managed account, you tell Wealthsimple your investment goals such as how long until you expect to buy a home, and they tailor an investment plan for you and manage it. For self-direct accounts, you manage your investments yourself.

TD Canada Trust First Home Savings Account

The TD First Time Homebuyer’s Savings Account currently offers a sign up bonus of $100 to get you started saving. The offer is valid until October 31st, 2023. The TD offering is limited to cash savings, GICs, and mutual funds only.

Bank of Montreal First Home Savings Account

At the time of writing, BMO was in the process of launching their FHSA. Click the link above to sign up to be notified when its available if they are your preferred bank.

Scotiabank First Home Savings Account

Scotiabank have recently launched their FHSA and are offering a special offer of 5.00% interest on a savings account linked to it.

National Bank First Home Savings Account

The National Bank FHSA was the first account to launch on the Canadian market back in April 2023.

Royal Bank of Canada First Home Savings Account

Unlike some of the other banks, RBC permits a full range of investment products within an FHSA including stocks and ETFs. There is also no minimum amount to open an account. Finally, RBC allows for either self-directed (you manage your investments or managed (they managed your investments) FHSAs.

CIBC First Home Savings Account

CIBC will be launching their FHSA in November 2023. Click on the above link if you want to be notified when it’s available.

Questrade First Home Savings Account

Questrade is an online, discount stock brokerage that now offers their own FHSA. Being a brokerage, you can hold investment products such as stocks and ETFs in this account, unlike the offerings from some of the Canadian banks. There is a minimum opening balance of $250.

Fidelity First Home Savings Account

With the Fidelity FHSA, you can invest in a range of securities including stocks, bonds, ETFs, mutual funds, and GICs.

Contributing to Your FHSA

You can contribute a maximum of $8,000 in 2023 to your FHSA. These contributions can come as direct cash contributions or transfers from your RRSP.

Currently, the maximum lifetime contribution to an FHSA account is set at $40,000.

You may have more than one FHSA account, but the total combined contributions must not exceed $8,000 in 2023 and $40,000 over the lifetime of the combined accounts.

Contributions must be made by December 31st of the current tax year. There is no extended contribution deadline like RRSPs have.

Carry-Forward Contributions

You may carry forward unused contributions from one tax year to the next. For example, if you made a $5000 contribution in 2023, you can add $3000 to your 2024 contribution. This would bring your total contribution limit for 2024 to $11,000 ($8000 per year, plus carry-forward $3000 from 2023).

Contributing to Your Partner’s FHSA

You may not contribute directly to your spouse or common law partner’s account directly. This means that you cannot claim a tax deduction for a contribution to your partner’s account.

Using First Home Savings Account Funds for Your Home Purchase

When it’s time to purchase a home, account holders can withdraw funds from their FHSA. The withdrawn amount can be used for a down payment, closing costs, legal fees, land transfer taxes, or other related expenses associated with the home purchase. However, it’s essential to remember that the funds must be used exclusively for these purposes to maintain the tax advantages of the FHSA. The is referred to as an “Qualifying Withdrawal”.

Your home must be located in Canada and you must occupy it as your principal residence. A share of a housing cooperative in your name also qualifies as a home purchase under the scheme.

To initiate the withdrawal from your FHSA, you should complete the CRA’s form RC725 and hand it to the financial institution who manages your account. A tax professional could help you complete the form or provide further advice.

Using Your First Home Savings Account Funds for Non-Home Purchases

The money in the FHSA is yours. Life circumstances sometimes dictate that we need money for unexpected events.

As an example, maybe you need a new secondhand car and want to use the FHSA funds to cover that cover. In this case, it becomes what’s known as an “unqualified withdrawal”. You would need to include details of this withdrawal on your taxes for the tax year it occurs in. You may incur additional income taxes in this circumstance.

Again, seek help from a qualified tax professional to understand the implications of doing this.

How Is This Different From RRSPs and TFSAs?

A TFSA (Tax-Free Savings Account) allows you to make after-tax contributions (i.e. there’s no tax deduction for contributions and you’ve already paid income tax on the money). When money is in the TFSA, it grows tax-free and then any future withdrawals are tax-free.

An RRSP (Registered Retirement Savings Plan) allows for a tax deduction on contributions (i.e. contributions reduce your taxable income) but withdrawals are taxed as regular income (either directly from the RRSP, or when it’s converted to an RRIF).

The FHSA is something of a hybrid of the TFSA and RRSP: contributions are tax-deductible, like an RRSP, reducing your taxable income. Growth is tax-free like a TFSA. And withdrawals, subject to “qualifying” terms, are again tax-free like a TFSA.

Combing the FHSA With Other Incentives

The First Home Savings Account program may be combined with the Homebuyers’ Plan (HBP). The HBP allows you to withdraw up to an additional $35,000 (at the time of writing) from your RRSP with the express intent of purchasing a property.

The First-time Home Buyers’ Tax Credit (HBTA) is also available when using the FHSA, which adds a non-refundable $10,000 tax credit when you complete the purchase of a home. This tax credit nets a $1500 tax reduction for those who qualify and apply.

Wrapping Things Up

The Canadian First Home Savings Account (FHSA) offers a valuable opportunity for prospective homebuyers to save for their first home while benefiting from tax advantages.

By taking advantage of tax-free growth and tax-deductible contributions, Canadians can accelerate their savings and enhance their financial readiness for homeownership.

However, it’s crucial to meet the eligibility criteria and use the FHSA funds exclusively for home-related expenses to fully leverage the program’s benefits. If you’re considering purchasing your first home, the FHSA can be an excellent tool to help you achieve your homeownership dreams. Always consult with a trusted advisor to understand the specifics of the FHSA and how it fits into your overall financial strategy.

Disclaimer: This blog post is for informational purposes only and should not be considered financial or investment advice. Please consult with a professional investment or tax advisor before making decisions of your own. This blog post contains a referral link to Qtrade Direct Investing and Loonies and Sense is paid a referral commission for those who establish a business relationship with Qtrade.

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