The First Home Savings Account (FHSA) is a powerful new tool introduced by the Canadian government to help first-time buyers save for a home. But understanding the tax implications of FHSA withdrawals is essential to ensure you don’t end up with an unexpected tax bill.
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🏡 What Is the FHSA?
The FHSA is a registered account that allows eligible Canadians to save up to $8,000 per year (up to a lifetime limit of $40,000) for the purchase of a first home. Contributions are tax-deductible, and qualifying withdrawals are tax-free.
✅ Who Qualifies as a First-Time Home Buyer?
To make a qualifying tax-free withdrawal from your FHSA, you must meet the CRA’s definition of a first-time home buyer:
- You did not live in a home you owned (or that your spouse owned) at any time in the last 4 years
- You are a Canadian resident at the time of withdrawal
- You have a written agreement to buy or build a qualifying home before October 1 of the year following the withdrawal
💵 Tax-Free Withdrawal Rules
When used for a qualifying home purchase, FHSA withdrawals are completely tax-free. However, strict conditions must be met:
- You must submit a completed CRA form RC725 – Request to Make a Qualifying Withdrawal from an FHSA
- You must not exceed your available FHSA withdrawal limit
- You can make multiple withdrawals, but all must relate to the same home purchase
Important: Withdrawals not meeting CRA requirements will be added to your income and taxed accordingly.
📄 What Happens If It’s a Non-Qualifying Withdrawal?
If you withdraw FHSA funds for anything other than purchasing your first home, it will be treated as taxable income in the year withdrawn. Your financial institution will issue a T4FHSA slip reporting this amount, which must be included in your tax return.
- Include on line 13000 (Other Income) of your T1 General return
- Tax will be withheld at source depending on the amount
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📅 Key FHSA Deadlines
- Contribution Deadline: December 31 annually
- Must purchase a home before: October 1 of the following year after withdrawal
- FHSA must be closed by: End of the 15th year after opening, or by age 71
🧾 FHSA vs HBP: Key Differences
| Feature | FHSA | HBP (Home Buyers’ Plan) |
|---|---|---|
| Tax Deductible Contributions | Yes | No (RRSP contributions are) |
| Tax-Free Withdrawal | Yes (if qualified) | Yes (but must repay) |
| Repayment Required | No | Yes – Over 15 years |
| Annual Contribution Limit | $8,000 | RRSP limit |
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📌 Summary: How to Use FHSA Wisely
- Only withdraw when you meet all CRA qualifications
- Use RC725 and keep proof of your purchase agreement
- Coordinate FHSA use with HBP for maximum benefits
- Report non-qualifying withdrawals on your tax return
Disclaimer: This content is for informational purposes only and is not a substitute for professional tax advice. Always consult a tax advisor before making any decisions regarding your FHSA or home purchase.
