An FHSA is a Tax-Free First Home Savings Account, designed to help Canadians save for their first home purchase. This account combines many of the benefits of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA).
Like RRSPs, contributions to FHSAs are tax deductible. This means that you can deduct contributions you make to the account from your total taxable income for that year. However, unlike when you withdraw funds under the HBP in an RRSP, you do not have to pay back the funds you withdraw within a certain period.
Overall, these accounts are meant to help Canadians save up to $40,000 toward buying their first eligible home (in Canada). Eligible Canadians can contribute as much as $8,000 per year, and unused portions of your contribution limit carry forward.
To learn more about FHSAs and all that they offer, check out our article here.
Eligibility requirements
Before you open an FHSA, you should make sure that you are eligible for the tax benefit that it offers. To be eligible to open an FHSA, you must meet the following requirements:
- Be a resident of Canada
- Be at least 18 years old, but no older than 71 years
- Be a first-time home buyer, as defined by the CRA
Open an FHSA with Wealthsimple
Before you begin
- You can open both managed and self-directed investing FHSAs with Wealthsimple.
- You can open as many managed FHSAs as you like. However, you can only have one self-directed investing FHSA.
- When you open a managed FHSA, you can choose a risk level. You can update your risk level at any time.
Once you’re ready to open an FHSA with Wealthsimple, follow the steps below:
- Sign in to your Wealthsimple mobile app.
- Tap the Home tab at the bottom of your screen.
- Scroll past your accounts and tap + Add an account.
- Choose Open a new account.
- Select FHSA from the menu.
- Follow the prompts to open your FHSA.
Note: Only self-directed investing FHSAs are available to open on the web experience of Wealthsimple. To open a managed FHSA, follow the mobile app steps.
- Log in to your Wealthsimple account.
- Scroll past your accounts on the Home page and select + Add an account.
- Select FHSA from the menu.
- Select Self-directed investing, then select Next.
- Follow the prompts to open your FHSA.
The difference between an FHSA and an RRSP
Refer to the table below to understand some differences between an FHSA and an RRSP:
| FHSA | RRSP | |
| Helps you safe for | Your first home | Retirement |
| Eligibility | First time home buyers | 18-71 years old |
| Annual contribution limit | $8000 (up to a maximum of $40,000) | 18% of previous year's income up to $30,780 |
| Tax impact on contributions | Deducted from taxable income | Deducted from taxable income |
| Tax impact on withdrawals | Growth and withdrawals towards your first home are tax-free | Taxed as income (with some exceptions) |
| Contribution deadline | December 31 | 60 days after December 31 |
| Government benefits | No impact on other benefits | Withdrawals may impact other government benefits based on income |
| Withdrawal stipulations | None | Must withdraw to RIF at 71 |
Frequently asked questions
How can I be sure that I’m eligible to open an FHSA?
To see if you’re eligible to open an FHSA, refer to the CRA’s article on Opening an FHSA.
Can I open a joint FHSA?
No. Since, the CRA calculates contribution room on a per-person basis, they do not allow joint FHSA.
I’m a US/Canada dual citizen. Can I open an FHSA?
Many tax experts would advise U.S. citizens to avoid investing in a FHSA because it is not considered a tax-sheltered account by the IRS. If you invest using a FHSA as a U.S. citizen, you won’t get to enjoy the tax-free benefits because all your investment gains will remain taxable when you file taxes in the U.S.
In addition, you may have additional filing costs when reporting your FHSA and any associated income.
Can I convert another account into an FHSA?
No, converting accounts is not possible. If you wish to move funds from another account to an FHSA, you may be able to set up an internal transfer. If you are withdrawing funds from a registered account to transfer into your FHSA, there may be tax implications.
Why am I being charged a “non-resident withholding tax” in my FHSA?
Although the tax-free status of the FHSA is recognized in Canada, the US Government doesn't officially recognize it, so US-company dividends received in your FHSA are subject to a 15% withholding tax. Don't worry, we take care of those for you so there's no effort needed on your end or any paperwork to file with the IRS.
When do I have to close an FHSA?
There are three different times where you would need to close your FHSA:
- On the 15th anniversary of opening your first FHSA
- On the year that you turn 71 years of age
- On the year after your first qualifying withdrawal from your FHSA
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