What is the FHSA?
The First Home Savings Account (FHSA) was launched by the federal government in April 2023. It is the first Canadian registered account to combine the advantages of the two existing major accounts:
- Like the RRSP: contributions are tax-deductible — you get 30% to 50% of your contribution back as a tax refund
- Like the TFSA: withdrawals to buy a first home are entirely tax-free — you pay nothing on the growth you accumulated
This is a combination that did not exist before 2023, and it makes the FHSA close to essential for any Canadian first-time buyer.
The essential rules
| Parameter | FHSA | TFSA (comparison) | RRSP HBP (comparison) |
|---|---|---|---|
| Deductible contribution | Yes ✓ | No | Yes |
| Tax-free withdrawal | Yes ✓ (purchase) | Yes | No (repayment required) |
| Room restored after withdrawal | No | Yes | N/A |
| Annual limit | $8,000 | $7,000 | $35,000 (HBP limit) |
| Lifetime limit | $40,000 | Unlimited (cumulative) | $35,000 |
| Repayment required | No | No | Yes, over 15 years |
Who can contribute to an FHSA?
To open and contribute to an FHSA, you must:
- Be a Canadian resident
- Be at least 18 (and under 71)
- Not have lived in a home you owned during the current calendar year or the four preceding years
Note: the definition of "first-time buyer" is more flexible than you might think. If you owned a home more than 4 years ago but no longer own one, you can qualify again.
The 2-year rule: open it now
To withdraw tax-free for a purchase, your FHSA must have been open for at least 2 full calendar years. That clock starts on the opening date, not on the first contribution.
Which ETF to hold in an FHSA?
The choice depends on your expected purchase horizon:
- Buying in 2-4 years: favour a balanced ETF such as VBAL (Vanguard 60/40) or XBAL (iShares 60/40). A market crash 12 months before your purchase would be catastrophic with a 100% equity portfolio.
- Buying in 5-7 years: you can move to VGRO (80/20) or XGRO (80/20). Slightly more growth, slightly more volatility.
- Buying in 7+ years: XEQT or VEQT (100% equity) becomes reasonable — you have time to ride out a correction.
Combining the FHSA and the HBP
Good news that is often missed: the FHSA and the RRSP Home Buyers' Plan (HBP) can be used at the same time for the same purchase. You can withdraw up to $40,000 from your FHSA and up to $35,000 from your RRSP through the HBP — potentially $75,000 of down payment by combining the two.
Key difference: the FHSA withdrawal requires no repayment. The HBP must be repaid over 15 years. If you only use the FHSA, you avoid any repayment obligation.
What happens if you never buy?
If you never become a homeowner, you have two options:
- Transfer to your RRSP: the FHSA balance moves into your RRSP without using up your available RRSP contribution room. No immediate tax — a good way out.
- Withdraw in cash: taxable as ordinary income (like an RRSP withdrawal). To be avoided if possible.
Either way, the FHSA remains an excellent way to invest — in the worst case it is simply an improved RRSP with an immediate tax deduction.