How to Open an FHSA in Canada
The First Home Savings Account (FHSA) is a powerful tool for Canadians saving to buy their first home. Combining the benefits of both a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP), the FHSA offers tax-deductible contributions and tax-free withdrawals for a home purchase.
In this article, we’ll walk you through everything you need to know to open an FHSA, from eligibility to choosing the right financial institution.
1. Eligibility Requirements for FHSA
Before you can open an FHSA, you must meet the following eligibility criteria:
Age: You must be at least 18 years old and a Canadian resident.
Homeownership Status: You must not have owned a home in the last four years.
Contribution Limits: The annual contribution limit is $8,000, and the lifetime contribution limit is $40,000. You can carry forward unused contribution room up to the annual limit.
2. Choosing a Financial Institution
To open an FHSA, you’ll need to go through a Canadian financial institution. Most major banks and credit unions offer FHSAs, so you can start by checking with the financial institution you already bank with. Here are some factors to consider:
Interest Rates: Look for competitive rates if you plan to keep your savings in cash.
Investment Options: If you want to grow your savings faster, see what investment options (like mutual funds, ETFs, or GICs) the institution offers within the FHSA.
Account Fees: Compare fees for managing your FHSA, as some institutions charge monthly or transaction fees.
You may also consider using an online brokerage if you want more control over your investments and access to a wider range of assets.
3. Steps to Open Your FHSA
Opening an FHSA is a straightforward process. Follow these steps:
Step 1: Choose Your Provider
Research and choose a financial institution or online brokerage that meets your needs. Consider their investment offerings, fees, and services.
Step 2: Gather Required Information
Make sure you have the following documents ready:
Proof of Canadian residency (such as a driver’s license or utility bill)
Your Social Insurance Number (SIN)
Proof that you haven’t owned a home in the last four years, if required by the institution
Step 3: Complete the Application
You can apply for an FHSA either online or in person at your financial institution. Fill out the required forms, providing your personal details and selecting how you would like to fund your account (lump sum, periodic payments, etc.).
Step 4: Fund Your FHSA
Once your account is open, you can start making contributions. Remember, the annual limit is $8,000, and contributions are tax-deductible, so consider how this will impact your taxes.
4. What Can You Invest in with an FHSA?
The FHSA allows you to invest in a wide variety of financial products to help your savings grow. These include:
Stocks and ETFs
Mutual Funds
Guaranteed Investment Certificates (GICs)
Bonds
Before choosing your investments, consider your risk tolerance and the time horizon for purchasing your home. If you're planning to buy a home in the near future, you may want to keep your investments conservative to protect your principal.
5. Tax Advantages of the FHSA
The FHSA offers two key tax benefits:
Tax-Deductible Contributions: Similar to an RRSP, contributions to your FHSA can reduce your taxable income for the year.
Tax-Free Withdrawals: When you’re ready to purchase your first home, withdrawals are tax-free, provided they’re used for a qualifying home purchase.
This means that not only do you get an immediate tax break when you contribute, but your money grows tax-free until you’re ready to make a withdrawal.
6. How and When to Withdraw Funds
You can withdraw funds from your FHSA when you're ready to buy a qualifying home. To be considered a qualifying withdrawal:
You must be a first-time homebuyer (not have owned a home in the last four years).
The home must be in Canada and intended to be your principal residence.
You must have a written agreement to buy or build a qualifying home by October 1 of the year following the withdrawal.
If you withdraw funds for non-qualifying purposes, the withdrawal will be subject to income tax.
7. Combining FHSA with Other Savings Plans
You can use your FHSA alongside other savings accounts to maximize your home-buying power:
RRSP: If you have RRSP savings, you can also use the Home Buyers’ Plan (HBP) to withdraw up to $35,000 tax-free for your home purchase.
TFSA: You can also use your TFSA for additional savings. Withdrawals from a TFSA are always tax-free and can be used for any purpose, including a down payment.
The Bottom Line
The FHSA is a great tool for Canadians saving for their first home, offering both tax-deductible contributions and tax-free withdrawals. With the ability to invest in a wide range of financial products, it’s a flexible account that can help you reach your homeownership goals faster.
If you’re ready to start saving for your first home, consider opening an FHSA today to take advantage of the tax benefits and watch your savings grow.