What is the Tax-Free First Home Savings Account? A detailed guide

**This post may contain affiliate links. I may be compensated if you use them.

What is the Tax-Free first home savings account (FHSA)? The FHSA is a new account that was introduced in the 2022 federal budget and is set to be available to Canadians in 2023. It basically provides first-time home buyers with a savings account that combines the tax benefits of a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP).

What is the First Home Savings Account?

The First Home Savings Account is an initiative set out by the federal government to help Canadians purchase their first home. Those using the account can save up to a maximum of $40,000 to be used towards the purchase of a single-family home. There is an annual contribution limit of $8,000. Unused contributions carry forward similar to TFSA, and RRSP contribution space. For example, if you contributed $5,000 one year, you’d have $11,000 contribution room available the next year. The carry forward option is a recent announcement, as originally, you could not carry things over.

Since this is a tax-free account, you won’t pay any taxes on capital gains or interest earned. In addition, any contributions you make to the account are tax-deductible. This account basically combines the benefits of an RRSP and TFSA

You don’t need to pay back any funds withdrawn from your Tax-Free First Home Savings Account. However, once you’ve made a withdrawal to purchase a home, you need to close your FHSA within a year from the first withdrawal.

If you don’t use the funds in your FHSA for a first home purchase within 15 years of first opening an account, you would need to close your FHSA or transfer it to your RRSP.

Also note that the FHSA is per person. If you’re purchasing with your spouse or common-law partner, you’d be able to access up to $80,000.

First Home Savings Account eligibility

Right now, eligibility for this tax-free First Time Home Savings account stands as follows:

  • You must be a resident of Canada
  • You must be at least 18 years of age
  • You can not own a home at any time in the year the account is opened or during the preceding four calendar years

Since this incentive is for first time homeowners, the expectation is that the FHSA is also meant for primary residences, not investment properties.

You can have more than one FHSA, but total contributions can not exceed your yearly or total limit.

Is the First-time Homebuyer Savings Account tax-free?

Yes, the FHSA is completely tax-free. This means that the account allows for tax-free growth while being held in the account (similar to both RRSP and TFSA). Plus, like with a TFSA, you will not need to pay any taxes upon withdrawal either.

That said, there are some tax implications that could potentially apply. Any withdrawals that aren’t used to purchase your first home count as taxable income. The odds are the government won’t let you day trade within your FHSA since that would be considered business income. In addition, if you don’t use your FHSA within 15 years, you need to transfer it to your RRSP.

Penalties of 1% per month apply to account holders for any overcontributions.

Qualifying FHSA withdrawals

The FHSA was designed to help home buyers. As a result, you can only withdraw funds without paying taxes for qualifying purchases.

To be eligible for a withdrawal, you must meet the following conditions:

  • You must be a first-time home buyer
  • Reside in Canada when making the withdrawal
  • Have a written agreement to buy or build a home in Canada before October 1 in the year that follows the year of withdrawal.
  • Use the home as your primary residence

Once withdrawn, the funds can be used for your down payment, closing costs, or even home expenses such as furniture.

If you withdraw funds for a non-qualifying reason, withholding taxes would apply and it would be treated like taxable income.

Do you need to pay back the First Home Savings Account?

No, unlike with the Home Buyers’ Plan, you do not need to pay back the First Home Savings Account once you have withdrawn it. The FHSA is specifically meant for saving for a down payment on your first home.

However, since it is meant specifically for buying a first home, you would be taxed if you withdrew funds from your FHSA for any reason other than buying a home. For example, if you withdrew $2,000 from your FHSA for a non-home buying reason, your income would increase by $2,000 for the year.

Can you transfer funds out of your FHSA?

You can transfer funds within your FHSA to your RRSP at any time before the year you turn 71. You do not need to have unused RRSP contribution room to make the transfer. Alternatively, if you’re over the age of 71, you can transfer your FHSA to your Registered Retirement Income Fund (RRIF). The amounts transferred do not count as a new RRSP contribution, so there is no additional tax break. Don’t worry if you don’t have any available contribution room in your RRSP, as FHSA transfers wouldn’t count against it.

Funds within your RRSP can also be transferred to your FHSA on a tax-free basis. However, the lifetime contribution limit of $40,000 and the yearly contribution limit of $8,000 would still apply. You also wouldn’t get the contribution tax break since you already got it when you first contributed to your RRSP.

What can I invest in the First Home Savings Account?

The name ‘savings’ account is a bit misleading, because, like with a TFSA, the First Home Savings Account is a lot more than just a savings account. It really should have been named the First Home Investment Account.

The expectation is that you can invest in the following:

While it’s great that you can invest in various products, buying a home is usually a short-term goal for many people. If you plan on buying a home within the next five years, purchasing stocks, ETFs, and mutual funds might not be the best idea since they can be riskier.

To give you some additional context, you could invest your money, and it might go up in value by 20% after five years. However, there’s an equal chance that your investments could drop by the same amount. Not many people want to risk their down payment, so they’d rather stick to safe investments such as bonds or a high-interest savings account.

Is the Home Buyer’s Plan better?

There are pros and cons to both. With the Home Buyer’s Plan (HBP), you can only withdraw up to $35,000. Those funds would also have to be repaid eventually. Under the FHSA, you can contribute up to $40,000, and you don’t need to pay it back.

If your goal is to purchase a single-family residence, it makes the most sense to fill your FHSA first since you get the benefits of an RRSP and TFSA. Once you’ve filled that up, putting your money in your TFSA is likely your next best option.

Recently, the government has proposed that first-time buyers can use both the HBP and FHSA. You can also transfer your RRSP to your FHSA at any time. This could give people that still want to save for retirement options. It would also allow people who have a defined contribution pension the ability to transfer funds to their FHSA as needed.

Does the First Home Savings Account make owning a home more affordable?

The real question here is, does the First Home Savings Account make owning a home more affordable?

The easy answer: No.

Having another tax-free account doesn’t make housing more affordable. It’s not like prices are going to drop. The government will argue that the tax benefits will make it easier to get into the housing market, but how will that work when real estate prices have been going up 20% year over year?

Even if everyone used the FHSA as an investment account and saw huge gains, that would just increase the funds in the overall buying pool. That would likely increase prices further, not lower them.

Many people have also pointed out that most young Canadians haven’t yet maxed out their TFSA and struggle to save for retirement. So, while the First Home Savings Account is a nice idea, in theory, chances are the majority of young Canadians won’t be able to contribute to that on top of other savings and investment vehicles already in place.

Now, that’s not to say that the account is a bad idea, but it would have made more sense for the government to change the rules around the Home Buyers’ Plan.

Final thoughts

The reality is that for most individuals, the Tax-Free First Home Savings Account won’t make their dream of homeownership come any sooner. Nor will it make housing more affordable. Any money you invest will likely have limited time to grow, so any gains you make won’t make a difference if prices continue to increase at their current pace. That said, if you’re saving for a home, the FHSA is the ideal account to put your money into.

Get the best mortgage in Canada in minutes

  • Search 30+ lenders at the same time for free
  • Save $10,000 on avearge
  • Only 5 minutes and no credit check to apply
Check mortgage rates now

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi


  1. Andrew on January 19, 2022 at 8:59 PM

    Hello, thank you for this information! Is there any information on when we’ll be able to create / contribute to this account?

    I haven’t heard much about it since the election campaigns…

    Thank you!

    • Barry Choi on January 20, 2022 at 7:36 AM

      Hey Andrew,

      No real updates on this. There was some additional language from another company, but no real update from the government yet.

  2. Sara on April 15, 2022 at 2:09 PM

    If you are buying a home with a partner and they already have a home, would you still be able to use the FHSA? Or would you need to take that out as income?

    • Barry Choi on April 15, 2022 at 4:57 PM

      Hey Sara,

      The original outline of the FHSA doesn’t outline this specific example, so I can’t comment. I suspect the answer is no.

  3. Theo Pham on April 21, 2022 at 1:46 PM

    You mentioned that the FHSA will be available to Canadians in 2023. So it means that the income tax deduction will be applicable for the 2023 income tax filing. Am I correct? Thank you

    • Barry Choi on April 21, 2022 at 1:52 PM


      That’s the way I understand it.

  4. Minnie on May 4, 2022 at 1:51 PM

    Is this information some where on a government of Canada website or are they still trying to determine what will be official.

    Also how will this affect people on social assistance programs. like ODSP says you are allowed to buy and own a home.

    How will they see this new account? Will they see it as an exempt asset like they do with the RESP and RDSP or will they view it as part of your asset limit ceiling.

    Governments want to make things but some things they make has a domino affect on their citizens that could cause a household crisis.

    • Barry Choi on May 4, 2022 at 7:58 PM


      Nothing has been legislated yet so no official details are available. All the information provided is based on what was outlined in the 2022 budget.

  5. Jimmers on May 17, 2022 at 1:53 PM

    The FHSA is only for people age between 18 and 40 years old.

    • Barry Choi on May 17, 2022 at 1:56 PM


      In the budget outline where the FHSA was announced, there is no longer a mention of the 40 year old limit.

      • Jimmers on May 17, 2022 at 2:33 PM

        Oh, good. Thanks for correcting me.

      • Fabio on May 19, 2022 at 4:18 PM

        Can you send me the link of the budget outline that indicates the features and requirements for the FHSA?

  6. fob on June 16, 2022 at 4:11 PM

    Hi Barry,

    If I use some other means (cash on the side) to purchase a house during the 5 year period that I contribute to the FHSA, will that trigger the one year period to close my FHSA account?

    • Barry Choi on June 16, 2022 at 4:17 PM


      The details for your scenario haven’t been outlined. In theory, the FHSA is for first time homebuyers. If you opened one up and decided to use funds not in your FHSA, you would have to close it since you can’t use the funds to buy your first home anymore. That said, the FHSA does have a 15 year window, and the definition of first-time homebuyer refers to someone who hasn’t owned a home in 5 years, so it is possible to become a first time homebuyer again.

      I know this doesn’t answer your question, I’m just stating the scenarios I can think of right now.

      • fob on June 16, 2022 at 4:46 PM

        thank you!

  7. Cathy Hall on August 11, 2022 at 10:14 PM

    If I have aFHSA of $40,000 and my partner has a FHSA of $40.000 could they be combined to purchase our first home. ($80,000 ) Food for thought.

    • Barry Choi on August 11, 2022 at 11:32 PM


      Yes, a couple would be able to access up to $80,000 under the FHSA

  8. Joe on August 19, 2022 at 12:49 PM

    Hey Barry,
    Can the income tax deduction be deferred and used in a year subsequent to the year the contribution was made?
    Thx, Joe

    • Barry Choi on August 19, 2022 at 8:26 PM


      No announcement has been made about that option.

  9. Steven on December 29, 2022 at 7:04 PM

    Hi Barry,
    I was unable to tell how long any funds might have to stay in the FSHA. For example; I drop 8000 into it on first day it’s available and then withdraw it 3-4 weeks later for home purchase. Any idea?

    • Barry Choi on December 29, 2022 at 7:10 PM

      Hey Steven,

      There’s been no official announcement about that yet.

  10. David on January 1, 2023 at 3:25 PM

    Hi Barry, Happy New Year. I wanted to clarify this whole transfer from FHSA to RRSP tax free. Every year, I maximize my contribution to all my registered accounts (TFSA, RRSP). This year, if I open a FHSA and maximize the $8k but choose not to use it to buy my home (use HBP instead), can I transfer that 8k (plus any unrealized gains or losses) to my RRSP in addition to my maximum contributed RRSP tax free?

    Also, I had read that you can’t use both a FHSA and HBP together on a same home purchase. This contradicts to what you posted that “Recently, the government has proposed that first-time buyers can use both the HBP and FHSA.” I’d appreciate if you can look into it and revise/clarify. Thanks!

    • Barry Choi on January 1, 2023 at 3:34 PM

      Hi David,

      There’s conflicting information because the FHSA has not been legislated.

      In reference to my line “Recently, the government has proposed that first-time buyers can use both the HBP and FHSA.” I pulled the information from here – https://www.advisor.ca/tax/tax-news/first-time-homebuyers-can-use-fhsa-and-hbp-feds-propose/

      When it comes to transferring unused FHSA contributions, that’s still a bit of an unknown. From what we know now, you can transfer unused amounts to your RRSP without regards to any existing or lack of contribution room. This would be tax free.

  11. Vito on January 2, 2023 at 8:09 PM

    Hey Barry,

    Long time, I hope all is well with you, and happy new year!

    I have a question in regards to a point your made, “once you’ve made a withdrawal to purchase a home, you need to close your FHSA within a year from the first withdrawal.”

    If, for example, you withdraw $2k as in your example for any non-home buying reason, it makes sense that your annual income of the year of withdrawal would increase by $2k, however, does that mean you would still need to close the FHSA within a year from the first withdrawal?

    I’m just thinking, let’s say something happens, and I need to access those funds but I still want to buy a home. If I had $30K in the account, the remaining $28K is still a decent down payment, but maybe I need to wait longer than 1 year to make my purchase.

    In other words, once you withdraw any amount, does the clock (1 year) start ticking?


    • Barry Choi on January 2, 2023 at 8:28 PM

      Hey Vito,

      Good to hear from you again.

      So the FHSA is a bit tricky since nothing is official yet. The way I understand it is that if you make a withdrawal that’s not used for purchasing a home, then it would be similar to an RRSP withdrawal. That means it would count as income. The one year clock should not apply.

      That said, we won’t know until everything is legislated.

  12. Jay on March 31, 2023 at 2:07 PM

    Say I open the account in April and contribute my $8000. Then in the summer this year I purchase my first home. My account balance would have barely changed.

    Do I have to withdraw for the home purchase or can I just leave the account as an investment account and continue to contribute another 4 years to take advantage of all 5-years (40K of tax-free contribution?)… And in 15 years move the entire balance to RRSP.


    • Barry Choi on March 31, 2023 at 2:11 PM

      Hey Jay,

      That’s a question that many people are wondering as it hasn’t formally been addressed. Couldn’t anyone just use the account as an additional tax-free savings account and just wait 15 years before rolling it into their RRSP without penalty?

  13. Jay on March 31, 2023 at 2:22 PM

    So this FHSA is really only good for someone buying after 5 years from today to take full advantage of $40K + growth during the period. Per my example, if buying this or next year,makes no sense to withdraw…. which means this is not really for buying a home but rather addtional RRSP contribution.

    … I’m not complaining 🙂

    • Barry Choi on March 31, 2023 at 2:26 PM


      Well, you’d still get the tax deduction so that puts some money back in your pocket right away.

      I can see this being a huge pain for financial institutions to administer.

      I don’t know if I see it as additional RRSP contribution room, but rather I view it as an account that I can invest up to $40,000 for 15 years. The hope is that I’ll be a first time buyer in that timeframe and hopefully withdraw my funds. If I don’t buy a home, or don’t qualify, I guess I’ll have to transfer it to my RRSP without penalty ;).

      • Jay on March 31, 2023 at 2:38 PM

        Thanks for your quick replies Barry. So if you end up buying first home in less than 1 year and your contribute is only 8K (and growth value up now to say 9K at time of purchase)…. would you withdraw? If so, it’s game over for the plan, right? I would just keep contributing for another 4 years and not use this for my home purchase.

        • Barry Choi on March 31, 2023 at 2:48 PM

          Hard to say with 100% certainty. You could buy this year, and sell it next year. You’d then be a first-time homebuyer again in 4 years if you didn’t buy again. Lots of unknowns with this account. Potentially lots of loopholes.

Leave a Comment

Get a FREE copy of Travel Hacking for Lazy People

Subscribe now to get your FREE eBook and learn how to travel in luxury for less