Tax-Free First Home Savings Account (FHSA) – A 2023 Overview 

In 2022, a new initiative called the Tax-Free First Home Savings Account (FHSA) was unveiled. As of April 1, 2023, this program offers potential first-time homebuyers the chance to deposit up to $40,000 and avail tax deductions on the same, inclusive of the investment income generated within the account. 

Eligibility for FHSA: 

• Must be a Canadian resident. 
• Must be 18 years or older. 
• Neither you nor your spouse/common-law partner should have owned a home in the year the FHSA is initiated or in the preceding four years. 

Contribution Details: 

• Eligible Canadians can deposit a maximum of $8,000 annually, with a total limit of $40,000 over their lifetime. 
• The carry forward begins only after the FHSA account is initiated. This is different from the Tax-Free Saving Account (TFSA), where the limit accrues annually regardless of account activation. 
• Once the account is active, any unused contributions will roll over to subsequent years. The maximum participation duration concludes 15 years post the account’s initiation. 

Contribution Sources: 

• Only the account holder can deposit into the FHSA. 
• However, funds gifted by a spouse or family member can be used to contribute to one’s FHSA without any attribution rules. 

Withdrawal Guidelines: 

• The entire original investment, along with any profits, can be utilized for buying a qualified home. 
• Withdrawals for purposes other than buying a qualifying home are taxable. 
• If both you and your spouse/common-law partner are purchasing a qualified home, funds from each individual’s FHSA can be combined, effectively doubling the available amount. 

Comparing FHSA with the First-Time Home Buyer Plan (HBP): 

• The HBP permits individuals to extract up to $35,000 from their RRSP account for their first home purchase. This amount must be reimbursed within 15 years. 
• In contrast, the FHSA, in theory, has no such limit. The initial $40,000, along with any investment returns, can be used for buying a qualified home. Moreover, there’s no obligation to repay the amount withdrawn from the FHSA. 
• Notably, taxpayers can now leverage both the FHSA and HBP for the same qualifying home.