Table of Contents
- New for 2023 and Future Years – The Tax-Free First Home Savings Account (FHSA)
- FHSA Reporting – How to Report FHSA Deductions on the T1 Return
- FHSA Reporting – Withdrawing Funds from a First Home Savings Account (FHSA)
New for 2023 and Future Years – The Tax-Free First Home Savings Account (FHSA)
Buying your first home in Canada is a major milestone, but saving for it can be challenging — especially with rising housing costs. To help first-time buyers reach that goal faster, the federal government introduced a brand-new program in 2023: the Tax-Free First Home Savings Account (FHSA).
The FHSA combines some of the best features of both RRSPs and TFSAs, making it a powerful savings tool for future homeowners.
Let’s explore how it works, who qualifies, and what makes it different from other registered savings plans.
🏡 What Is the FHSA?
The Tax-Free First Home Savings Account (FHSA) is a registered plan that allows Canadians to save for their first home with tax advantages.
It was introduced in the 2022 federal budget and officially launched in 2023. Financial institutions across Canada have now started offering FHSAs to eligible individuals.
💡 Why It’s Called a “Hybrid” Plan
The FHSA is unique because it combines the benefits of both an RRSP (Registered Retirement Savings Plan) and a TFSA (Tax-Free Savings Account):
| Feature | FHSA | RRSP | TFSA |
|---|---|---|---|
| Contributions are tax-deductible | ✅ Yes | ✅ Yes | ❌ No |
| Withdrawals are tax-free (for qualifying purpose) | ✅ Yes (if used to buy a first home) | ❌ No (taxed as income) | ✅ Yes |
| Investment income grows tax-free | ✅ Yes | ✅ Yes (tax-deferred) | ✅ Yes |
| Purpose | Saving for a first home | Retirement savings | General savings/investment |
In simple terms:
👉 You get a tax deduction when you put money in (like an RRSP), and
👉 You don’t pay tax when you take it out to buy your first home (like a TFSA).
That’s why it’s called a hybrid plan — it gives you the best of both worlds.
👤 Who Can Open an FHSA?
To be eligible to open an FHSA, you must:
- Be a Canadian resident,
- Be at least 18 years old, and
- Be a first-time home buyer.
What “First-Time Home Buyer” Means
You are considered a first-time home buyer if:
- You did not own a home at any time during the current year, or in the previous four calendar years.
This rule applies to you and (if applicable) your spouse or common-law partner.
So, for example, if you sold your home five years ago, you could qualify again.
💰 Contribution Rules
Annual and Lifetime Limits
- Annual contribution limit: $8,000
- Lifetime contribution limit: $40,000
This means the maximum contribution period is five years if you contribute the full $8,000 each year.
Example:
If you open your FHSA in 2023 and contribute $8,000 every year, by 2028 you’ll have reached the $40,000 lifetime limit.
No Carry-Forward of Unused Room
Unlike RRSPs or TFSAs, unused FHSA contribution room does not carry forward.
If you only contribute $5,000 in one year, you can’t “catch up” the missing $3,000 later. You can still contribute $8,000 in the next year, but not $11,000.
👉 Tip: To get the most out of the FHSA, try to contribute the full $8,000 each year if possible.
Multiple Accounts
You can open more than one FHSA at different financial institutions, but your combined contributions cannot exceed the annual or lifetime limits.
The limits apply per individual, not per account.
🏠 Withdrawals – Buying Your First Home
When you’re ready to buy your first home, you can withdraw funds from your FHSA tax-free, as long as the withdrawal meets the CRA’s qualifying home purchase rules.
To qualify:
- You must be a first-time home buyer (as defined earlier),
- You must be a Canadian resident, and
- The funds must be used to buy or build a qualifying home in Canada,
- You must intend to occupy the home as your principal residence within one year of purchase.
Once the funds are withdrawn for a qualifying home purchase:
- The withdrawal is not taxed,
- The account must be closed within one year, and
- You cannot open another FHSA later — it’s a one-time benefit.
If the funds are withdrawn for any other reason, the amount is taxable as income (similar to withdrawing from an RRSP).
🧾 How FHSA Contributions Affect Your Tax Return
Because FHSA contributions are tax-deductible, you’ll claim them on your T1 personal tax return, similar to how RRSP deductions work.
This means:
- Your taxable income decreases by the amount contributed,
- You could receive a larger tax refund, and
- You can choose to claim the deduction in a future year if it benefits you more.
Withdrawals, when used for a qualifying home purchase, do not have to be reported as income.
🕒 Important Timelines
- The FHSA program began in 2023, but some financial institutions rolled out their accounts later in the year.
- Contributions made in a calendar year can be deducted on that year’s tax return (or carried forward to a later year).
- Once you make a qualifying withdrawal, you must close the FHSA within 1 year.
⚠️ Key Things to Remember
- You must be a first-time home buyer (no home ownership in the current year or previous 4 years).
- You can contribute up to $8,000 per year, $40,000 lifetime.
- No carry-forward of unused contribution room.
- Contributions are tax-deductible, and withdrawals are tax-free for qualifying home purchases.
- You can hold multiple FHSAs, but the total contribution limit applies to you, not each account.
- Once you use the FHSA to buy a home, the account must be closed — it’s a one-time program.
🔍 FHSA vs. Home Buyers’ Plan (HBP)
Many people confuse the FHSA with the Home Buyers’ Plan (HBP), which allows you to withdraw from your RRSP to buy a home. Here’s how they compare:
| Feature | FHSA | Home Buyers’ Plan (HBP) |
|---|---|---|
| Source of funds | New FHSA contributions | RRSP savings |
| Tax on withdrawal | None (if used for a qualifying home) | None initially, but must be repaid |
| Repayment required | ❌ No | ✅ Yes (within 15 years) |
| Contribution room carry-forward | ❌ No | ✅ Yes (RRSPs have carry-forward) |
| Lifetime limit | $40,000 | $35,000 |
Some home buyers may use both programs together to maximize their down payment — for example, withdrawing from both an FHSA and RRSP (under the HBP) at the same time.
🧠 Summary for Beginner Tax Preparers
If you’re preparing taxes and encounter a client with an FHSA:
- Contributions will appear on their tax slip (similar to RRSPs).
- The deduction will be claimed on the T1 return.
- Withdrawals for a qualifying home are not taxable.
- Withdrawals for other purposes are taxable as income.
The FHSA is a powerful tool for first-time buyers and will likely become a common part of Canadian tax returns moving forward. It’s important for every tax preparer to understand its rules and eligibility.
In short:
The Tax-Free First Home Savings Account (FHSA) helps Canadians save for their first home faster, with the double benefit of tax-deductible contributions and tax-free withdrawals.
It’s a once-in-a-lifetime opportunity — so knowing how it works is essential for both taxpayers and tax preparers.
FHSA Reporting – How to Report FHSA Deductions on the T1 Return
Once a taxpayer contributes to their Tax-Free First Home Savings Account (FHSA), the next step is reporting those contributions correctly on their personal income tax return (T1). For new preparers, it’s important to understand how this deduction flows through the return and which schedules or lines are affected.
1. Where FHSA Deductions Are Reported
FHSA contributions are tax-deductible, similar to contributions to a Registered Retirement Savings Plan (RRSP).
On the T1 General Income Tax and Benefit Return, these deductions are reported in the Deductions section (Step 3).
- RRSP deduction: Line 20800
- FHSA deduction: Line 20805
Line 20805 is specifically reserved for the First Home Savings Account deduction. This is where the total deductible amount from the FHSA will appear after being calculated on the supporting schedule.
2. Schedule 15 – FHSA Contributions, Transfers, and Activities
To support the deduction on line 20805, the taxpayer must complete a new form called Schedule 15.
This schedule is used to track all FHSA activities for the year and ensures that contributions, transfers, and withdrawals are reported accurately.
Schedule 15 includes four key sections:
Step 1 – Account Information
Indicate whether the taxpayer opened an FHSA account during the tax year.
Even if the taxpayer did not make a contribution, this box should be checked so the CRA can begin tracking their FHSA participation and contribution room.
Step 2 – Annual FHSA Limit
This section determines the taxpayer’s available contribution limit for the year.
For most individuals:
- The annual limit is $8,000 per calendar year.
- The lifetime limit is $40,000.
If the taxpayer contributed less than $8,000, they cannot carry forward the unused portion to future years. Each year stands on its own.
Step 3 – FHSA Contributions and Deductions
Here, the taxpayer reports how much was actually contributed to their FHSA account(s) during the year.
The contribution amount will usually be confirmed by a T4FHSA slip issued by the financial institution that holds the account.
The deductible amount (up to the annual and lifetime limits) is then transferred to line 20805 of the T1 return.
Step 4 – FHSA Withdrawals
If the taxpayer made withdrawals from their FHSA, this section determines whether they were qualifying withdrawals (used to buy a first home) or non-qualifying withdrawals (which may be taxable).
For most 2023 tax returns, there were few withdrawals since the program was still new, but this section will become more relevant as more people use the FHSA to purchase homes.
3. Example: Reporting a Contribution
Let’s look at a simple example:
Scenario:
In 2023, Jordan opened an FHSA account and contributed the maximum $8,000.
Reporting process:
- On Schedule 15:
- Step 1: Indicate the account was opened in 2023.
- Step 2: Enter the annual limit of $8,000.
- Step 3: Record the $8,000 contribution (supported by the T4FHSA slip).
- On the T1 return, enter $8,000 on line 20805 as the FHSA deduction.
This deduction will reduce Jordan’s net income, resulting in a lower taxable income for the year.
4. Important Notes for Preparers
- Keep the T4FHSA slip: This slip is proof of contribution and should be kept on file in case the CRA requests it.
- Ask clients early: Always ask clients if they opened an FHSA during the year—even if they didn’t contribute—so the CRA can start tracking their account.
- Contribution limits apply to the individual: A person can open multiple FHSA accounts with different institutions, but the combined total across all accounts cannot exceed the annual or lifetime limits.
- Withdrawals for home purchase: Qualifying withdrawals are not taxable, but non-qualifying withdrawals will be included in income in the year they are made.
Summary
| Step | Task | Where It Appears |
|---|---|---|
| 1 | Confirm FHSA account opened | Schedule 15, Step 1 |
| 2 | Determine annual and lifetime limit | Schedule 15, Step 2 |
| 3 | Record contribution and calculate deduction | Schedule 15, Step 3 |
| 4 | Report any withdrawals | Schedule 15, Step 4 |
| 5 | Claim deduction | T1 Return, Line 20805 |
Key Takeaway for Beginners
When preparing a client’s tax return, think of the FHSA in a similar way to an RRSP—the contribution reduces taxable income, but it is reported on its own schedule (Schedule 15) and its own line (20805). Always check the T4FHSA slip for accuracy and ensure all details flow properly to the T1 return.
FHSA Reporting – Withdrawing Funds from a First Home Savings Account (FHSA)
Once a taxpayer opens a Tax-Free First Home Savings Account (FHSA) and begins making contributions, it’s equally important to understand how withdrawals from the account are treated for tax purposes. Withdrawals can either be qualifying (tax-free) or non-qualifying (taxable), and knowing the difference is key to reporting them properly on a T1 personal tax return.
1. Qualifying Withdrawals – Tax-Free
A qualifying withdrawal happens when the funds are used to purchase or build a first home that meets the CRA’s conditions.
To qualify:
- The taxpayer must intend to occupy the home as their principal residence within one year of purchase or construction.
- The home must be a qualifying home in Canada.
- The individual must be a first-time home buyer (meaning they haven’t owned a home in the current year or the previous four calendar years).
When a qualifying withdrawal occurs:
- The amount withdrawn is not taxable.
- The taxpayer still keeps the tax deduction for the FHSA contribution they made.
- The withdrawal must be reported on Schedule 15, under Step 4: Withdrawals from your FHSA.
- There’s no income inclusion on the T1 return.
Example:
Maria contributed $8,000 to her FHSA in July 2023. In October, she purchased her first home and withdrew the full $8,000 as a qualifying withdrawal.
- She keeps her $8,000 deduction on line 20805 (FHSA deduction).
- The withdrawal is reported on Schedule 15, but it does not appear as income on her T1 return.
- Her tax refund remains intact because the withdrawal is tax-free.
Tip:
Schedule 15 also includes a checkbox asking whether the address on the tax return matches the address of the home purchased. This helps the CRA verify that the taxpayer actually moved into the qualifying home. Always mark this box if applicable.
2. Non-Qualifying Withdrawals – Taxable
A non-qualifying withdrawal occurs when the funds are taken out for reasons other than purchasing or building a first home.
For example:
- The taxpayer decides not to buy a home.
- The withdrawal doesn’t meet CRA’s qualifying conditions.
- The FHSA funds are used for personal expenses instead.
In this case:
- The amount withdrawn becomes taxable income in the year it’s withdrawn.
- The contribution deduction (previously claimed) remains, but now the same amount must be added back as income.
- The income is reported on line 12905 of the T1 return under “Taxable First Home Savings Account Income.”
Example:
Jordan contributed $8,000 to an FHSA in 2023 but withdrew it later in the year without purchasing a qualifying home.
- He keeps his $8,000 deduction on line 20805.
- However, the $8,000 withdrawal becomes taxable income on line 12905.
- The two amounts cancel out, resulting in no tax benefit or refund.
CRA Reporting:
The withdrawal will be shown on a T4FHSA slip, with the taxable amount reported in the appropriate boxes (such as boxes 22 or 26). These slips are issued by the financial institution and must be included when filing the tax return.
3. Transfers from RRSPs to FHSAs
The rules also allow taxpayers to transfer funds from an RRSP into an FHSA, up to the annual and lifetime FHSA limits.
Key points to remember:
- Transfers are tax-free.
- The transfer does not create a new tax deduction because the taxpayer already received the deduction when contributing to the RRSP.
- These transfers are reported on Schedule 15, but they do not affect the T1 return directly (no additional income or deduction).
Example:
Alex transfers $8,000 from his RRSP to his FHSA.
- The transfer is reported on Schedule 15 as a transfer in.
- No amount is included in income or deducted again on the T1.
- Alex now has $8,000 in his FHSA that can later be withdrawn tax-free for a qualifying home purchase.
4. How It All Ties Together
| FHSA Transaction | Schedule Used | Line on T1 | Tax Effect |
|---|---|---|---|
| FHSA Contribution | Schedule 15 | Line 20805 | Tax deduction (reduces taxable income) |
| Qualifying Withdrawal | Schedule 15 | — | Not taxable |
| Non-Qualifying Withdrawal | Schedule 15 | Line 12905 | Taxable income |
| RRSP Transfer to FHSA | Schedule 15 | — | No immediate tax effect |
5. Key Takeaways for New Preparers
- Always review the T4FHSA slip carefully — it contains essential details for both contributions and withdrawals.
- Qualifying withdrawals are tax-free, but they must meet CRA rules for purchasing or building a first home.
- Non-qualifying withdrawals are taxable and must be added to income on line 12905.
- RRSP-to-FHSA transfers are neutral for tax purposes — report them on Schedule 15, but they don’t affect the return’s income or deduction totals.
- Ensure clients check the address box on Schedule 15 if they moved into their new home, as this helps confirm the legitimacy of the qualifying withdrawal.
Summary
The FHSA combines elements of both the RRSP and the TFSA — contributions are tax-deductible like an RRSP, and qualifying withdrawals are tax-free like a TFSA. For tax preparers, the most important part is to identify the type of withdrawal and ensure it’s correctly reported on Schedule 15 and the appropriate T1 lines.
This understanding ensures your client benefits from the FHSA’s savings potential while staying fully compliant with CRA reporting requirements.
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