Affording your dream home can be challenging, especially when it comes to saving for a down payment. That’s why the Government of Canada came up with a registered plan aimed at assisting first-time home buyers. Not only does the program help you save faster, but it also offers tax-related perks that you can benefit from.
The First Home Savings Account, or FHSA, is a game-changer that every Canadian should know about. Today, we’ll delve deeper into the FHSA contribution limit to help you achieve your home ownership goals and avoid potential pitfalls in the process.
Key Takeaways
An FHSA is a tax-free savings account for individuals interested in buying their first primary residence.
The FHSA program features an annual contribution limit but also allows for the carry-forward of unused contribution room to the following year.
An FHSA can’t be shared or joint, but both spouses or partners are allowed to open separate savings accounts.
The First Home Savings Account has an expiry date of 15 years.
You cannot open another FHSA account after you have purchased your first home.
FHSA withdrawals are tax-free as long as you comply with the primary withdrawal criteria, including, but not limited to, requesting funds 30 days after moving into a new home.
What Does FHSA Stand For?
If you are new to the field of investment programs, it is natural to wonder about what an FHSA is at its core. Any Canadian citizen of legal age who hasn’t owned a home can open this special savings account designed to help them accumulate the costs of buying a house.
The program is a clever mix between the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA), and here’s why. Just as in the case of an RRSP, FHSA contributions are deductible from your general income. At the same time, any interest will accumulate tax-free, similar to both a TFSA and RRSP.
Who Qualifies for an FHSA in Canada?
The Canadian government has a list of specific requirements you must comply with to access an FHSA. Some of these criteria are rather basic, while others are quite specific and require thoughtful consideration.
Age Requirements
You must be between 18 and 71 years of age to open a first-home savings account. However, in certain provinces of Canada, like British Columbia and Newfoundland, the legal age for signing contracts is 19. Suppose you’re 25 at the moment – you can open an FHSA if you comply with the rest of the requirements. At the same time, if you’ve recently turned 72, your application will be denied.
Residency Requirements
You must be a valid tax resident of Canada to proceed with your FHSA application. You can hold and contribute to the account even if you become a non-resident in the future. However, in that case, you won’t be able to use these savings for the qualifying home purchase until you regain Canadian residency.
Home-Investment Requirements
As the name suggests, the plan is intended for first-home investment purposes only. That is why it is imperative that you either haven’t owned a home or haven’t lived in one that you owned in the past five calendar years before the application. Keep in mind that the rule also applies to joint home ownership.
What is the FHSA Contribution Limit?
Just like any other type of savings account created by the government, the First Home Savings Account has government-approved contribution room. The FHSA contribution limit is $8,000 per account per calendar year. Keep in mind that there’s a lifetime limit as well: $40,000 per individual account. The annual contribution room limit resets every year, so it does not matter if you make a single $8,000 contribution or spread it over 12 months. Let’s discuss a practical example:
Janet opens an FHSA in January 2025. She contributes $2,000 to her account every three months. By December 2025, she meets the limit of $8,000. Janet’s new annual limit will start in January 2026. Until then, she cannot contribute more money to her FHSA.
Predefined contribution room inspires savings targets and the tax benefits make it easier to stay disciplined with your budget!
What Happens to Unused Contribution Room?
If you don’t max out your annual contribution limit, don’t worry; it won’t vanish. The unused contribution room simply accumulates for the upcoming year or years.
For instance, if you manage to save up half of the offered limit in 2025 – $4,000 – the remaining sum will roll over to your 2026 contribution room. In such a case, you will have a limit of $12,000, not just $8,000. The rollover will continue until you reach the point of $40,000. This carry-over provides you with flexibility and better control over your financial situation, regardless of how it may change over the course of your savings years.
IMPORTANT! Although it is permitted to open multiple FHSAs, the contribution limit is tied to the account holder’s name, not to each separate account. This means that even if you have three FHSA accounts under your name, the contribution room remains $8,000, not $24,000. It is vital to keep this in mind, as over-contribution leads to penalty taxes in the amount of 1% of the over-contribution sum per month.
What Are the Rules and Requirements for FHSA Contributions?
An FHSA is a smart approach to save money for your first home, as it is an excellent opportunity to reduce your taxable income. However, there are a couple of rules and requirements to remember as a First Home Savings Account holder.
Contribution limits: If you exceed either the annual or lifetime contribution room, you will be charged a one percent tax every month on the over-contribution. Be sure to know your limits to avoid penalties and save money.
Unused contributions: Remember that your contribution room carries forward if you don’t make the maximum annual deposit. You don’t have to worry about losing your tax benefits if you aren’t able to put as much towards savings in a particular year.
Withdrawals:. If you withdraw money from your FHSA to buy a house, then you’ll stay within the tax deduction range. However, if you choose to use the funds for any other purpose, you’ll have to pay registered income tax.
Expiration dates: There are two critical timeframes to keep in mind when opening an FHSA account. 1) You can hold the account for no longer than 15 years. If there is still money in your FHSA after 15 years, you can transfer the funds to an RRSP to avoid paying taxes. 2) You can’t keep an FHSA after you turn 71 years of age. If you have any remaining money in your FHSA after turning 71, you can transfer it to your Registered Retirement Income Fund (RRIF) to avoid taxes.
Ownership of multiple FHSAs: Although you are allowed to open multiple savings accounts, you must always keep in mind that the contribution room limit is per person, not per account. Opening separate FHSA accounts may lead to lost contribution tracking, which can result in over-contribution and unnecessary charges.
Can You Start Saving With Both FHSA and RRSP Accounts?
The short answer is yes; you can create, hold, and contribute to both savings accounts. In fact, it will be a smart financial move, as each plan serves a different purpose but aids a clear short-term or long-term investment goal.
Main features | FHSA | RRSP |
Purpose | First-time home savings account | Retirement savings plan |
Tax-deductible deposits | Available | Available |
Residency requirements | Must be a legal Canadian resident | Must be a Canadian resident for tax purposes |
Spousal or common-law partner contributions | Not allowed | Allowed |
Age limit | 71 years old | 71 years old |
Tax-free growth | Enabled | Enabled |
Transfers between accounts | Allowed to make transfers to another FHSA, RRSP, or RRIF account (however, annual or lifetime limits apply) | Allowed to make transfers to another RRSP, FHSA, or RRIF account (however, annual or lifetime limits apply) |
Estate preservation | Naming a successor or a beneficiary is allowed | Naming a beneficiary is allowed |
Maximum contributions | $8,000/year (up to a maximum of $40,000) | 18% of the annual taxable income for the previous year, which does not exceed $32,490 (2025) |
As you can see, both FHSA and RRSP investments offer a variety of benefits that other savings products may lack. Since the contribution limits for these accounts are separate, you can use the perks that either program offers and build a financially stable future without unnecessary penalties and taxes.
Note: The following contributions can’t be deducted from your income tax return:
Contributions made after the first qualifying withdrawal for a home purchase
Over-contributions that you choose to withdraw to avoid additional taxes
Contributions that exceed the lifetime limit
Leftover contributions that remain in the account after your participation period expires
Conclusion
The First-Home Savings Account offers significant advantages to first home buyers. The account comes with a contribution limit, so knowing and abiding by the limit will help you optimize your savings potential and avoid unwanted taxes and penalties.
Whether you are just exploring this tax-free investment or have already made up your mind, you should stay as informed and strategic as you can. Contact us with any questions you have or to get started. Together, we will make your savings work so that the path to your dream home is short and obstacle-free!
FAQ
What Is the Annual FHSA Contribution Limit for 2025?
The maximum contribution you can make to your FHSA in 2025 is $8,000. It is important to note that if you have any unused contributions, they will carry forward to the following year.
Is There a Lifetime Contribution Limit for the FHSA?
The lifetime contribution room for an FHSA is $40,000 per person. Keep in mind that the funds accumulated through the program are strictly bound to first home purchases, not rental property investment.
What Are the Consequences of Over-Contributing to My FHSA?
If you exceed the approved contribution room, you will be charged a 1% monthly tax on the excess as long as it stays in the account. You can choose to withdraw or transfer funds to another account, such as an RRSP, to avoid the additional penalties applied to your FHSA.
Can Both My Spouse and I Contribute to Our Own FHSAs?
Yes, both spouses can have separate FHSAs. Each spouse has an individual annual contribution limit in the amount of $8,000 and a lifetime limit of $40,000. This allows partners to save toward their first home twice as fast and efficiently since both reap the tax benefits and accumulate the funds independently.