What Is FHSA? A Tax-Free Strategy to Buy Your First Home in Canada

The First Home Savings Account (FHSA) is a new tax-advantaged savings account introduced by the Canadian government to support first-time homebuyers. It blends features of both RRSPs and TFSAs — offering tax deductions on contributions and tax-free withdrawals when the funds are used to purchase a qualifying home.

This article will explain:

• What FHSA is and how it works

• How it compares to RRSP and the Home Buyers’ Plan (HBP)

• How to combine FHSA + RRSP to unlock up to $75,000 tax-free

• Key financial strategies for first-time homebuyers in Canada

1. What Is FHSA?

FHSA stands for First Home Savings Account, a registered account launched in 2023 that allows eligible Canadians to save for their first home while enjoying valuable tax benefits.

1.1. Key Features

• Contribute up to $8,000 annually, with a lifetime maximum of $40,000

• Contributions are tax-deductible (like RRSPs)

• Investments grow tax-free within the account

• Withdrawals are tax-free when used for a qualifying home purchase

1.2. Who Can Open an FHSA?

To be eligible, you must:

• Be at least 18 years old

• Be a resident of Canada

• Not have owned a home in the last 4 years

• Intend to purchase a qualifying home to occupy as your principal residence

2. RRSP and the Home Buyers’ Plan (HBP)

In addition to FHSA, your Registered Retirement Savings Plan (RRSP) can also help you fund your first home through the Home Buyers’ Plan (HBP).

2.1. How HBP Works

• Withdraw up to $35,000 tax-free from your RRSP

• If both spouses qualify: up to $70,000 combined

• You must repay the amount withdrawn over a period of 15 years

• No taxes are owed if you follow the repayment schedule

2.2. Comparing FHSA and RRSP via the Home Buyers’ Plan

While both the FHSA and the RRSP (through the Home Buyers’ Plan) allow you to withdraw funds tax-free for your first home purchase, there are important differences in how they function and the conditions attached.

With an FHSA, withdrawals used for a qualifying home purchase are completely tax-free and do not need to be repaid. In contrast, funds withdrawn from an RRSP through the HBP must be repaid over a 15-year period. If repayments are missed or incomplete, the unpaid portion is treated as taxable income for that year.

Contribution limits also differ. The FHSA allows a maximum of $8,000 per year and a lifetime limit of $40,000, whereas RRSP contribution room depends on your earned income and the annual government-defined RRSP cap.

Both accounts offer tax-sheltered growth, meaning any investment gains made within the accounts are not taxed while the funds remain invested.

In terms of age, you must be at least 18 years old to open an FHSA, whereas there is no specific age restriction for participating in the RRSP’s Home Buyers’ Plan, as long as you meet the program criteria.

In summary, the FHSA is ideal for tax-free savings without repayment obligations, while the RRSP + HBP option can help supplement your funding, provided you have a plan in place for gradual repayment over time. When used together strategically, these tools can significantly increase your homebuying power.

3. Combine FHSA and RRSP to Access $75,000 Tax-Free

One of the most effective ways to maximize your homebuying budget is by combining FHSA with RRSP withdrawals via HBP.

3.1. Example Strategy:

• Withdraw $40,000 from your FHSA

• Withdraw $35,000 from your RRSP via HBP

👉 Total of $75,000 in tax-free funds for your first home
👉 For a couple: up to $150,000 tax-free

This combination can significantly help with down payment, closing costs, and other upfront expenses.

4. Best Practices for First-Time Homebuyers

✅ Open Your FHSA Early

The sooner you start, the more time your investments have to grow tax-free.

✅ Withdraw from FHSA First

Unlike RRSP/HBP, FHSA withdrawals don’t require repayment.

✅ Use Tax Deductions Wisely

Both FHSA and RRSP contributions reduce your taxable income — a major benefit if you're currently in a high tax bracket.

✅ Plan HBP Repayments Strategically

Missed repayments will be taxed as regular income. Automate your annual repayment if possible.

5. Conclusion

What is FHSA? It’s more than just a savings tool — it’s a smart, tax-efficient pathway to homeownership in Canada. When used strategically with the RRSP Home Buyers’ Plan, it allows first-time buyers to access up to $75,000 tax-free toward their dream home.

Planning early and using both accounts wisely can lead to significant tax savings and financial stability in one of life’s most important investments: your first home.