How to Actually Use an FHSA to Buy a Home: The Full Sequence

The First Home Savings Account is the only registered account in Canada that is deductible on the way in and tax-free on the way out. An RRSP gives you the deduction and taxes the withdrawal. A TFSA does the reverse. The FHSA does both halves, which is why the order of operations matters more here than in any other account.

Get the sequence wrong and the withdrawal stops qualifying, which turns a tax-free deposit into taxable income in the year you need every dollar for closing.

Step 1: Open the account before you are ready to save

This is the step people skip, and it is the one with a deadline attached. FHSA contribution room does not accumulate from the day you become eligible. It starts the year you open an account. Someone who opens one in December with no money in it still banks $8,000 of room for that year and can carry it forward.

You qualify if you are at least 18, a Canadian resident, and a first-time home buyer, which means you did not live in a qualifying home that you or your spouse or common-law partner owned in the current calendar year or the four preceding calendar years. That last clause is why it is worth reading how common-law status affects credits and benefits before you assume you qualify.

Step 2: Contribute up to the annual limit, and know what carries forward

You get $8,000 of room a year, to a lifetime maximum of $40,000. Unused room carries forward, but only $8,000 at a time, so the most you can contribute in any single year is $16,000. Over-contributions attract a monthly penalty tax on the excess.

One difference from the RRSP catches almost everyone: the first-60-days rule does not exist here. An RRSP contribution made in February can be deducted against the previous tax year. An FHSA contribution made in February counts for the current year, full stop. If you want the deduction for this year, the money has to be in before December 31.

You do not have to claim the deduction in the year you contribute. Carrying it forward to a year when you are in a higher bracket is often worth more, particularly if you are early in your career and expect a raise before you buy.

Step 3: Invest for the date you will actually buy

An FHSA can hold the same investments as a TFSA: cash, GICs, ETFs, mutual funds, stocks and bonds. What it should hold depends entirely on your timeline.

Check that a GIC matures before your expected closing date, not after it. A locked GIC on possession day is a problem no amount of tax efficiency fixes. The FHSA savings calculator will project the balance by year so you can see what the account realistically holds when you need it.

Step 4: Line up the purchase before you withdraw

The withdrawal only stays tax-free if it is a qualifying withdrawal, and the conditions are checked at the moment you take the money out, not afterwards. You need all of the following.

• You are a first-time home buyer at the time of the withdrawal, on the same four-year test used to open the account.
• You have a written agreement to buy or build a qualifying home, and the purchase or completion date is before October 1 of the year after the withdrawal.
• You intend to occupy the home as your principal residence within one year of buying or building it.
• You are a Canadian resident from the withdrawal until the purchase or construction completes.
• You did not acquire the home more than 30 days before the withdrawal.

Step 5: File RC725 and take the money out

Give your issuer Form RC725, Request to Make a Qualifying Withdrawal from your FHSA. You certify the conditions, the institution releases the funds, and no tax is withheld. There is no maximum on a qualifying withdrawal and no requirement to pay it back, which is the main structural advantage over the Home Buyers' Plan.

You can use both on the same purchase. The Home Buyers' Plan lets you take a withdrawal from your RRSP, and it must be repaid over 15 years on a schedule; miss a year and that portion becomes taxable income. The FHSA never has to be repaid. Where money is limited, filling the FHSA first is usually the stronger order.

Step 6: Close the account, or move it before the deadline

The FHSA is not permanent. It ends at the earliest of 15 years after you opened it, the end of the year you turn 71, or the end of the year after your first qualifying withdrawal. Anything left when it closes has two exits.

• Transfer to an RRSP or RRIF. Tax-free, and it does not use any of your RRSP contribution room. This is what should happen to a leftover balance.
• Withdraw it. The amount is taxable income in that year, with tax withheld at source. Only reasonable if you have no RRSP and no plans.

If you decide not to buy at all, the transfer route means nothing is lost. You received deductions on the way in and the money ends up as retirement savings. That asymmetry is why an FHSA is rarely a bad decision even when the house is uncertain.

The full sequence in order

1. Open an FHSA the moment you qualify, even with a zero balance.
2. Contribute up to $8,000 a year, tracking carry-forward and the $40,000 lifetime cap.
3. Claim the deduction now, or carry it to a higher-income year.
4. Hold investments that match your purchase date, and de-risk as it approaches.
5. Get a mortgage pre-approval and confirm what you can actually carry.
6. Sign the purchase agreement.
7. File RC725 with your issuer and take the qualifying withdrawal.
8. Transfer any remainder to an RRSP before the account's closing deadline.

For the rest of the purchase, the mortgage and home buying hub covers down payment thresholds, the stress test and closing costs, and the cost of selling calculator is worth a look before you buy, not after: it shows how many years of ownership it takes to recover the transaction costs.

Frequently asked questions

Can I have both an FHSA and use the Home Buyers' Plan?

Yes. Both can be used on the same qualifying purchase. The FHSA withdrawal is never repaid, while the Home Buyers' Plan withdrawal must be repaid to your RRSP on a schedule.

What happens to my FHSA if I never buy a home?

Transfer the balance to an RRSP or RRIF before the account's closing deadline. The transfer is tax-free and does not use RRSP contribution room, so the deductions you already claimed stay claimed.

Do FHSA contributions in the first 60 days count for the previous year?

No. That rule belongs to the RRSP. An FHSA contribution always counts for the calendar year in which it is made, so a December 31 deadline is a real deadline.

Can I open an FHSA if my partner owns a home?

Generally not, if you lived in it. The first-time buyer test looks at homes owned by you or your spouse or common-law partner that you occupied in the current year or the four preceding calendar years.

How much can I withdraw from an FHSA to buy a house?

There is no cap on a qualifying withdrawal. You can take the entire balance, including investment growth, tax-free, provided the withdrawal conditions are met.

Sources

• CRA: First Home Savings Account
• CRA: Making a qualifying withdrawal from an FHSA
• CRA: Home Buyers' Plan
• CRA: Form RC725