FHSA and the Home Buyers' Plan

First-time buyers have two registered-savings tools. A first home savings account (FHSA) gives you a tax deduction going in and a tax-free withdrawal for your home, with nothing to pay back. The Home Buyers’ Plan (HBP) lets you take money out of your own RRSP and pay it back within 15 years. You can use both for the same home if you meet the conditions for each.

The FHSA

Who can open one

To open an FHSA, you must be at least 18 (19 where that’s the legal age for signing a contract), no older than 71 at the end of the year you open it, a resident of Canada, and a first-time home buyer. For opening an FHSA, that means that in that year and the previous four calendar years, you didn’t live, as your main home, in a home owned by you or by your current spouse or common-law partner.

File Schedule 15 with your return for the year you open your first one, even if you put nothing in.

How much you can contribute

• Your participation room is $8,000 in the year you open your first FHSA. Room doesn’t build up before then, so opening an account early, even without contributing, starts your room growing.
• Unused room carries forward to the next year, but the carry-forward is capped at $8,000.
• The lifetime limit is $40,000.
• Room covers all your FHSAs combined, and transfers from your RRSP use it up just like contributions. Investment income earned inside doesn’t.

If you put in more than your room, a tax applies for each month the excess stays in the account.

Using it to buy a home

A qualifying withdrawal is tax-free and never has to be repaid, and you can take out everything in the account. At the time of the withdrawal:

• You must be a first-time home buyer for withdrawal purposes: you didn’t live in a home you owned as your main home in the previous four calendar years, or earlier in the current year (other than the 30 days just before the withdrawal). A home owned only by your spouse doesn’t count against you at this stage.
• You need a written agreement to buy or build a qualifying home in Canada, to be acquired or completed before October 1 of the year after the withdrawal.
• You can’t have acquired the home more than 30 days before the withdrawal.
• You must stay a resident of Canada until you acquire the home, and intend to live in it as your main home within a year of buying or building it.
• You give your FHSA issuer Form RC725.

If you don’t buy

If you have no excess FHSA amount, you can transfer the money directly to your RRSP or RRIF with no immediate tax and without using RRSP room. Taking it out instead is a taxable withdrawal. An FHSA can’t stay open forever: it has a maximum participation period of up to 15 years from when you open your first one, so plan to use or move the money before then.

The Home Buyers’ Plan

The HBP lets you withdraw from your RRSPs to buy or build a qualifying home for yourself or a specified disabled person. No tax is withheld on HBP withdrawals up to the program’s maximum, listed on the CRA’s Home Buyers’ Plan page.

The main conditions:

• You’re a first-time home buyer: the same four-year test as for an FHSA withdrawal, except that a home owned by your current spouse or common-law partner also counts. There are exceptions for a person with a disability and after a relationship breakdown.
• You have a written agreement to buy or build a qualifying home (a mortgage pre-approval isn’t enough), acquired or built before October 1 of the year after your first withdrawal.
• You’re a resident of Canada and intend to live in the home as your main home within a year.

Fill out Form T1036 for each withdrawal. All withdrawals must be made in the calendar year of the first one or in January of the next year. RRSP contributions made in the 89 days before a withdrawal may not be deductible.

Paying it back

You have up to 15 years to repay. Under the regular rule, repayments start in the second year after the year of your first withdrawal. For a first withdrawal made from 2022 through 2028, the start moves to the fifth year after (2031 for a first withdrawal in 2026).

To repay, contribute to your RRSP during the year or in the first 60 days of the next one, and designate the amount as an HBP repayment on Schedule 7. Repayments aren’t deductible, but they don’t use RRSP deduction room either, and you can’t repay into an FHSA. If you repay less than the year’s minimum, the shortfall is added to your income.

You can use the HBP again once your HBP balance is zero on January 1 of the year you withdraw.

Using both

You can make an HBP withdrawal and a qualifying FHSA withdrawal for the same home if you meet each program’s conditions when you withdraw. The key difference: FHSA money never goes back, while HBP money must be repaid. And while an HBP participation can be cancelled in some situations, an FHSA qualifying withdrawal can’t be undone.