The New First Home Savings Account (FHSA) Explained – A Complete Guide by a Montreal CPA Firm Near You

The First Home Savings Account (FHSA) is one of the most powerful new tools

introduced to help Canadians purchase their first home. Combining the tax advantages

of both an RRSP and a TFSA, the FHSA allows first-time buyers to make tax-deductible

contributions while withdrawing funds tax-free when buying a qualifying home. This

makes the FHSA one of the most significant developments in Canadian personal

finance in decades. However, many Canadians still do not fully understand how the

FHSA works, how it interacts with RRSPs and TFSAs, or how to maximize its tax

benefits. Misunderstanding FHSA rules can lead to missed deductions, contribution

errors, or ineligibility for tax-free withdrawals. This guide provides a complete

explanation of the First Home Savings Account FHSA in Canada, including contribution

limits, tax advantages, withdrawal rules, and strategies for first-time home buyers.

Legal and Regulatory Framework

The FHSA was created under new provisions in the Income Tax Act that allow eligible

first-time buyers to contribute up to $8,000 per year, to a lifetime maximum of $40,000.

Contributions to an FHSA are tax-deductible, similar to RRSP contributions, and unused

FHSA room carries forward indefinitely up to the yearly limit. Investment income earned

inside an FHSA grows tax-free, and withdrawals made to purchase a qualifying first

home are also tax-free, similar to TFSA withdrawals. To qualify as a first-time buyer, the

taxpayer must not have lived in a home they owned during the current year or the

previous four calendar years. FHSA funds may be used together with the RRSP Home

Buyers’ Plan (HBP), allowing buyers to combine both programs. CRA requires proper

documentation for qualifying withdrawals, including purchase agreements and closing

documents. These legislative rules form the foundation for the First Home Savings

Account FHSA in Canada.

Key Court Decisions

Because the FHSA is a new program, there are not yet major court decisions

specifically interpreting FHSA rules. However, courts have established principles that

apply indirectly. In McLeod v. Canada, the court confirmed that taxpayers are

responsible for monitoring contribution limits in registered plans, which applies equally

to FHSAs. In Gibson v. The Queen, the court emphasized that tax-free withdrawals in

housing programs must comply strictly with eligibility criteria. In Koo v. Canada, the

court ruled that substantial compliance is not enough when claiming housing-related

benefits; documentation must be complete. These precedents show that CRA and the

courts will enforce FHSA regulations strictly, making proper compliance essential when

using an FHSA in Canada.

Why CRA Targets This Issue

CRA pays close attention to registered savings plans because misuse of contribution

room, withdrawals, or eligibility rules can result in significant tax losses. Although the

FHSA is new, CRA will closely monitor contributions to ensure taxpayers do not exceed

annual or lifetime limits, as excess contributions trigger a 1% monthly penalty. CRA will

also verify that withdrawals are used for a qualifying home purchase and that the

taxpayer meets the definition of a first-time home buyer. Any discrepancies or

unsupported withdrawals may cause the withdrawal to become taxable. Because the

FHSA offers tax deductions and tax-free withdrawals, CRA will target misuse, improper

contributions, or incorrect reporting. Understanding FHSA rules in Canada is essential

to avoid reassessment.

Mackisen Strategy

At Mackisen CPA Montreal, we help first-time buyers and young professionals develop

personalized FHSA strategies that maximize tax savings and accelerate

homeownership. Our approach begins by analyzing the taxpayer’s income level to

determine the ideal timing for FHSA contributions in order to maximize tax deductions.

We coordinate FHSA planning with RRSP and TFSA strategies to prevent contribution

conflicts and optimize long-term savings. For clients purchasing a home soon, we

prepare FHSA withdrawal documentation and ensure the transaction meets CRA

requirements for tax-free withdrawals. For clients not yet ready to buy, we design multi-

year FHSA contribution plans combined with investment strategies to grow tax-free

income. By integrating FHSA rules with broader financial and tax planning, we help

Canadians leverage the First Home Savings Account FHSA in Canada to its fullest

potential.

Real Client Experience

A young professional earning a high salary asked whether they should contribute to an

FHSA or an RRSP. After analyzing their income, we recommended maximizing the

FHSA first, because it provides a tax deduction today and a tax-free withdrawal later,

offering a superior advantage. Another client planned to buy a condo in two years and

wanted to combine the FHSA with the Home Buyers’ Plan. We structured their

contribution plan to maximize both programs, increasing total available tax-free funds

significantly. A third client was unsure whether they qualified as a first-time home buyer

because they previously owned a home with a former spouse. We reviewed their

occupancy history and determined they met the four-year test, allowing them to open an

FHSA. These cases show how strategic planning ensures maximum benefits from the

FHSA in Canada.

Common Questions

Many Canadians ask whether they must claim the FHSA tax deduction in the year of

contribution. They do not; the deduction can be deferred to a future tax year. Others ask

whether FHSA funds can be invested. Yes, the FHSA allows the same types of

investments as RRSPs and TFSAs, including stocks, ETFs, mutual funds, and GICs.

People also ask whether they can open an FHSA if they already have an RRSP or

TFSA. Yes, the FHSA is a separate plan with its own contribution limits. Another

frequent question is whether the FHSA can be used for a second home later in life. It

cannot; the FHSA is only for first-time buyers and can be used only once. These

questions highlight the importance of understanding FHSA rules in Canada.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps

Canadians stay compliant while maximizing the tax benefits available through the First

Home Savings Account FHSA in Canada. Whether you are planning to buy your first

home, coordinating your FHSA with RRSP and TFSA strategies, or preparing for a tax-

free withdrawal, our expert team ensures precision, transparency, and protection from

audit risk.