Whether you’re just starting out or have been saving for a while, government programs such as the First Home Savings Account (FHSA) and the Home Buyers' Plan (HBP) can help you reach your home ownership goals faster.
But how do you know which program to use? Here, we’ll take a closer look at these accounts to help you make the most of your savings.
What is the First Home Savings Account?
The FHSA is a registered account that provides tax-free savings for first-time home buyers. You can contribute up to $8,000 annually to this program, to a lifetime maximum of $40,000 over 15 years. Like an RRSP, contributions so an FHSA are tax-deductible1; like a TFSA, withdrawals can be made tax-free2.
What is the Home Buyers' Plan?
The HBP allows you to withdraw funds from your Registered Retirement Savings Plan (RRSP) to buy or build a first home. You can withdraw up to $35,000, as long as the funds have been held in your RRSP for at least 90 days.
Find help for first-time home buyers.
Choosing between an FHSA and the HBP
When you’re saving for your first home, you need to make the most of your money. Here are a few comparisons between these two programs.
| FHSA | HBP | |
|---|---|---|
| Eligibility |
Canadian residents who, along with spouses or common-law partners, are considered first-time home buyers. You must plan to occupy the qualifying home within one year. |
Canadian residents, considered first-time home buyers, with plans to buy or build a qualifying home for themselves or a specified disabled person. You must plan to occupy the home within one year. |
| Biggest benefit |
Similar to an RRSP, contributions are tax-deductible, and your savings grow tax-free1. Similar to a Tax-Free Savings Account (TFSA), qualifying withdrawals are tax-free2. |
Allows you to dip into RRSP savings to help fund your first home. Borrow from your RRSP without paying withholding tax. |
| Withdrawal rules |
There is no withdrawal limit. Withdrawals made for a qualified home purchase will not be taxed. Non-qualifying withdrawals can be made any time but will be subject to income tax.3 |
Withdrawals up to $35,000 from RRSP savings can be made for a qualified home purchase without paying withholding tax or having to report the funds as income. |
| Repayment |
You do not need to repay funds withdrawn from your FHSA. |
Money borrowed from your RRSP through the HBP must be repaid within 15 years. |
FHSA vs HBP – choosing one or both
If you’re planning on buying your first home in the next several years, how do you know which program to use? Thankfully, when it comes to withdrawing funds for a qualifying home purchase, you can use both the FHSA and HBP, together.
But how do you know where to save your money – an FHSA or your RRSP? Of course, if you are able to max out contributions to both, you will gain the greatest advantage, when it’s time to buy your first home.
When choosing between one program or the other, however, timing may play a factor. Given that the contribution deadline for an FHSA is December 31 of a given year, and the RRSP deadline is 60 days later, you may want to use savings in January and February to top up your RRSP contribution for the previous year.
Ultimately, these programs offer flexibility and peace of mind. If you don’t need to withdraw funds through the HBP, they will continue to grow within your RRSP. Similarly, any unused funds in your FHSA can be rolled into your RRSP or RRIF to help you towards your retirement savings goals.
Learn more about programs for first-time home buyers
Help for First-Time Home Buyers
First Home Savings Account (FHSA)
Are you ready to own your own home?
Information regarding the First Home Savings Account is based on what is available from the Government of Canada as of July 2023, and subject to change.
1 Contributions and/or transfers (from your Registered Retirement Savings Plan (RRSP)) to your FHSA up to your maximum FHSA contribution room for the year are tax-deductible, and any investment income earned is tax-sheltered. Contributions in excess of your allowable FHSA contribution room will be taxed at 1% for every month it’s in your FHSA, until the excess FHSA amount is eliminated.
2 Withdrawals from the FHSA to purchase a qualifying home must be made using a prescribed form.
To withdraw funds on a non-taxable basis, the holder must:
- Be a first-time homebuyer at the time of withdrawal
- An individual counts as a first-time home buyer if you did not, at any time in the current calendar year before the withdrawal (except the 30 days immediately before the withdrawal) or at any time in the preceding four calendar years, live in a qualifying home (or what would be a qualifying home if located in Canada) as your principal place of residence that you owned or jointly owned.
- Have a written agreement in place before the withdrawal to buy or build a qualifying home (in Canada) before October 1 of the year following the date of the withdrawal
- Not have acquired the qualifying home more than 30 days before making the withdrawal
- Intend to occupy that home as the principal place of residence within 1 year of acquiring the qualifying home
- Be a resident of Canada from the time of the withdrawal until the home is acquired If the above conditions are met, the entire balance in the FHSA can be withdrawn on a tax-free basis in a single withdrawal or a series of withdrawals.
3 In some cases, you may pay additional fees for withdrawals. For example, if you’re holding GICs in your FHSA and withdraw funds before they mature, you may pay a penalty.
