FHSA Explained: The Ultimate Guide for Canadian First-Time Home Buyers

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The First Home Savings Account: Canada's Most Powerful Tool for First-Time Buyers

The FHSA is the ultimate account for saving towards your first home. It combines the best features of the TFSA and RRSP—your contributions are tax-deductible AND your withdrawals for a home purchase are completely tax-free.

If you're dreaming of buying your first home, the FHSA is where you should be saving. Here's everything you need to know.

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What is an FHSA?

The First Home Savings Account (FHSA) is a registered account introduced in 2023 specifically designed to help Canadians save for their first home. It’s the only account in Canada that offers both tax-deductible contributions and tax-free withdrawals—a double tax advantage you won’t find anywhere else.

Think of it as the government saying: “We want to help you buy a home, so we’ll give you tax breaks on the money you put in AND the money you take out.”

Tax-Deductible Contributions

Like an RRSP, contributions reduce your taxable income. An $8,000 contribution could save you $2,400+ in taxes (at 30% tax rate).

Tax-Free Withdrawals

Like a TFSA, qualified withdrawals for a home purchase are completely tax-free. You keep every dollar of your growth.

Tax-Free Growth

All investment gains, dividends, and interest inside your FHSA are never taxed while they grow.

Flexible Investments

Hold stocks, ETFs, bonds, GICs, and more inside your FHSA. Invest based on your timeline to maximize growth.

Carry Forward Room

Unused contribution room carries forward to future years (up to $8,000 per year). Miss a year? You can catch up.

Transfer to RRSP

Change your mind about buying? Transfer your FHSA to your RRSP tax-free without affecting your RRSP room.

2025 FHSA Contribution Limits

2025 Annual Contribution Limit
$8,000
Lifetime maximum: $40,000

The FHSA allows you to contribute up to $8,000 per year, with a $40,000 lifetime limit. That means you can max out your FHSA in just 5 years of contributions.

Carry-Forward Rules

If you don't contribute the full $8,000 in a given year, you can carry forward the unused room to future years—but only up to $8,000 of carry-forward at a time.

Example:

  • Year 1: Contribute $0 → $8,000 carry-forward
  • Year 2: Maximum contribution = $8,000 (annual) + $8,000 (carry-forward) = $16,000
  • Year 3+: If you contributed $16,000 in Year 2, you're back to the standard $8,000 annual limit

Pro Tip: Open your FHSA as early as possible, even if you can only contribute a small amount. This starts the clock on your 15-year participation period and begins accumulating carry-forward room.

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FHSA Eligibility Requirements

To open and contribute to an FHSA, you must meet all of these requirements:

  • Canadian Resident: You must be a resident of Canada
  • Age 18+: You must be at least 18 years old (or the age of majority in your province)
  • First-Time Home Buyer: You cannot have owned a home in which you lived at any time during the current calendar year or the preceding four calendar years
  • Under 71: You must be under 71 years of age

The First-Time Buyer Definition

The "first-time home buyer" definition is more flexible than you might think. You qualify if you haven't owned and lived in a home as your principal residence in the current year or the previous four years.

This means:

  • If you sold your home more than 4 years ago, you may qualify again
  • If you owned an investment property but never lived in it, you still qualify
  • Your spouse's home ownership status matters—if your spouse owned a home you lived in during the last 4 years, you don't qualify

Important: The first-time buyer requirement applies when you open the account AND when you make a qualifying withdrawal. Make sure you understand the rules before contributing.

How the FHSA Actually Works

Understanding the FHSA is straightforward once you know the key rules:

Contributions

Qualifying Withdrawals

To withdraw tax-free for a home purchase, you must:

Non-Qualifying Withdrawals

If you withdraw without buying a qualifying home:

The 15-Year Rule

Your FHSA must be closed by December 31 of the year that is the earliest of:

FHSA Timeline: Key Deadlines

The FHSA has a 15-year participation period. Here's what happens at key milestones:

  • Year 1: Open your FHSA and start contributing
  • Years 2-14: Keep contributing, investing, and watching your down payment grow
  • Year 15: Final year to use funds for a home purchase OR transfer to RRSP
  • After Year 15: Account must be closed—remaining funds transferred to RRSP or withdrawn (and taxed)

Don't wait to open your FHSA—the 15-year clock starts ticking when you open the account, not when you start contributing.

FHSA vs TFSA vs RRSP: Which Should You Use?

The FHSA isn’t meant to replace your TFSA or RRSP—it’s a specialized tool for first-time home buyers. Here’s how they compare:

FHSA vs TFSA vs RRSP Comparison

Feature FHSA TFSA RRSP
Tax on Contributions Tax-deductible After-tax Tax-deductible
Tax on Withdrawals Tax-free (for home) Tax-free Taxed as income
Tax on Growth Tax-free Tax-free Tax-deferred
Annual Limit (2025) $8,000 $7,000 18% of income
Lifetime Limit $40,000 Unlimited Varies by income
Withdrawal Flexibility For home purchase only Anytime, any reason Penalized (except HBP)
Best For First-time home buyers Flexible savings Retirement

If you're saving for your first home, the FHSA should be your #1 priority—it's the only account with BOTH tax benefits.

The Optimal Order for First-Time Buyers

  1. FHSA First: Max out your $8,000/year for the double tax advantage
  2. TFSA Second: For additional home savings or emergency fund
  3. RRSP Third: If you have high income and want additional tax deductions (remember, you can use the Home Buyers’ Plan to withdraw up to $60,000 from your RRSP for a home purchase too)

Power Move: You can use BOTH the FHSA ($40,000 max) AND the RRSP Home Buyers' Plan ($60,000 max) for the same home purchase. That's up to $100,000 in tax-advantaged savings for your down payment (plus your TFSA on top of that).

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The Best FHSA Investment Strategy

Your FHSA investment strategy should depend on when you plan to buy your home. The closer you are to buying, the more conservative you should be.

FHSA Investment Guide by Timeline

Match your investments to your home-buying timeline:

  • 10+ years away: XEQT or XGRO (higher growth, can handle volatility)
  • 5-10 years away: XGRO or XBAL (balanced growth and stability)
  • 3-5 years away: XBAL or GICs (more conservative)
  • 1-3 years away: GICs or high-interest savings (capital preservation)
  • Under 1 year: High-interest savings account only (no risk)

Why this matters: If you're buying a home next year and the stock market crashes 30%, your down payment is devastated. But if you're buying in 15 years, a crash is actually an opportunity—you have time to recover and then some.

The longer your timeline, the more aggressive you can be. The shorter your timeline, the safer you should be.

Why XEQT or XGRO for Long-Term FHSA Savings

If you won’t be buying a home for 7+ years, investing in growth-focused ETFs like XEQT (100% stocks) or XGRO (80% stocks/20% bonds) makes sense:

Example: $8,000/year for 5 years in XGRO (7% return):

Learn more about the best investments for your FHSA.

Important: Don't invest your down payment money in stocks if you're buying within 3-5 years. Market volatility could wipe out years of savings right when you need the money.

Best Platform for Your FHSA

Not all banks and brokerages offer FHSAs yet—it’s a relatively new account type. Among those that do, Wealthsimple stands out as the best option for most Canadians.

Why Wealthsimple is the Best FHSA Platform

Wealthsimple was one of the first platforms to offer the FHSA, and they've made it incredibly easy to open and manage:

$0 Commissions Buy XEQT, XGRO, or any ETF without trading fees
$0 Minimum Start with any amount, even $1
Fractional Shares Invest every dollar, not just whole shares
5-Minute Setup Open your FHSA from your phone
Auto-Deposits Set up automatic contributions
CIPF Protected Your investments are protected up to $1M

Traditional banks often charge $9.95 per trade and have higher minimum investments. Wealthsimple's commission-free trading means every dollar goes directly into your down payment fund.

Over 3 million Canadians trust Wealthsimple with their investments.

Learn more about why Wealthsimple is the best platform for Canadian investors.

How to Open Your FHSA (5 Minutes)

  1. Click Our Referral Link
    Use this link to sign up for Wealthsimple and get $25 towards your first investment.
  2. Select "FHSA" as Your Account Type
    When prompted, choose First Home Savings Account. You can add other account types (TFSA, RRSP) later.
  3. Verify Your Identity
    Quick photo ID verification with your driver's license or passport. Takes about 2 minutes.
  4. Fund Your Account
    Link your bank and transfer funds. Instant deposits let you invest right away.
  5. Invest Based on Your Timeline
    Buying in 10+ years? Search "XEQT" or "XGRO" and buy. Buying sooner? Consider XBAL or GICs.

That's it—you're now building your down payment with tax-deductible contributions and tax-free growth.

Common FHSA Mistakes to Avoid

1. Not Opening an FHSA Early Enough

The 15-year clock starts when you open the account, not when you contribute. Open your FHSA as soon as you're eligible—even with just $1—to start the clock and begin accumulating carry-forward room.

2. Leaving Contributions in Cash

Many people contribute to their FHSA but never actually invest the money. Cash sitting in your account earns nothing and loses value to inflation. Invest immediately based on your timeline.

3. Investing Too Aggressively for Short Timelines

If you're buying a home in 2-3 years, don't put your down payment in 100% stocks. A market crash could devastate your savings right when you need them. Match your investments to your timeline.

4. Forgetting to Claim the Tax Deduction

FHSA contributions are tax-deductible like RRSPs. Make sure to report your contributions on your tax return—an $8,000 contribution could save you $2,000+ in taxes.

5. Not Understanding the First-Time Buyer Requirement

You must be a first-time buyer both when opening the FHSA AND when making a qualifying withdrawal. If your circumstances change (you inherit a home, get married to a homeowner, etc.), it could affect your eligibility.

Frequently Asked Questions

Can I use my FHSA and RRSP Home Buyers' Plan together?

Yes! You can withdraw up to $40,000 from your FHSA and up to $60,000 from your RRSP (via the Home Buyers' Plan) for the same home purchase. That's up to $100,000 in tax-advantaged savings for your down payment.

What happens if I never buy a home?

No problem. You can transfer your FHSA to your RRSP tax-free, without affecting your RRSP contribution room. Or you can withdraw the funds (they'll be taxed as income, like an RRSP withdrawal).

Can I buy a home with my spouse's FHSA?

Each spouse can have their own FHSA. If you're both first-time buyers, you could each contribute $40,000 (total $80,000) towards the same home purchase, all with double tax advantages.

What if I buy a home and have leftover FHSA funds?

Any funds remaining after your qualifying withdrawal must be withdrawn (and taxed) or transferred to your RRSP by December 31 of the year following your withdrawal.

Can I transfer from my RRSP to my FHSA?

No. You can transfer from FHSA to RRSP, but not the other way around. The FHSA is meant for new savings, not reshuffling existing registered accounts.

Is the FHSA better than the TFSA for saving for a home?

Yes, if you qualify. The FHSA gives you a tax deduction on contributions (which the TFSA doesn't), while still offering tax-free withdrawals. It's strictly better for first-time home buyers.

Can I have both an FHSA and a TFSA?

Absolutely. They're separate accounts with separate contribution limits. Max out your FHSA first for the double tax advantage, then use your TFSA for additional savings.

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The Bottom Line

The FHSA is the most powerful savings tool available to Canadian first-time home buyers. It’s the only account that offers both tax-deductible contributions and tax-free withdrawals—a double advantage you won’t find anywhere else.

The strategy is simple:

  1. Open an FHSA at a commission-free platform like Wealthsimple
  2. Contribute $8,000/year (or as much as you can) to get the tax deduction
  3. Invest based on your timeline—XEQT/XGRO for long-term, GICs for short-term
  4. Let tax-free growth compound your savings
  5. Withdraw tax-free when you’re ready to buy your first home

Every year you wait is contribution room you’re potentially losing and tax savings you’re missing out on.

Open your FHSA. Start saving. Buy your first home.

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