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Feb 1, 2024

Year Two Of The FHSA: Your Contribution Room Depends On What You Did Last Year, And Even If You Contributed, You Donít Have To Deduct The Contribution This Year

by Julie Petrera

We’re now entering year two of the First Home Savings Account (FHSA). While there are still some details missing guidance, the government continues to provide clarity on qualifications and specific features of this new account type. Below are the details as we know them as of January 2024.

High Level, you may qualify for an FHSA if you:

  • Are a Canadian resident,
  • Have a valid SIN,
  • Are over the age of majority,
  • Are under age 71, and
  • Have not occupied a home that you or your spouse or common-law partner owns/ has owned in the past four calendar years.

If you qualify for an FHSA, you can:

  • Contribute a maximum of $8,000 per calendar year, up to a lifetime maximum of $40,000 within 15 years of opening your first FHSA,
  • Carry a maximum of $8,000 in unused contributions forward to future years, as long as an FHSA account is open,
  • Have multiple FHSA accounts as long as the annual and lifetime limits are not exceeded,
  • Deduct contributions against income tax in the years they are made or in future years,
  • Withdraw funds tax-free when used to purchase a qualifying home,
  • Combine withdrawals with a spouse or partner if you are buying a home together, meaning if you both contributed the maximum, you could withdraw a combined $80,000 plus investment growth tax-free,
  • Transfer unused contributions to a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) if the funds are not used to buy a qualifying home within 15 years from the time you open the account or before December 31 of the year you turn 71; and/or
  • Withdraw the unused contributions as taxable income.

2023 was the first year the FHSA was available, and if you opened an account, you could now have $16,000 worth of contribution room: $8,000 for 2023 and $8,000 for 2024. If you did not open an account in 2023, you will gain $8,000 worth of room by opening one in 2024. This is because the carry-forward room for the FHSA works differently than for other types of accounts.

  • RRSP: Room begins to accumulate for RRSP as soon as you file taxes.
  • TFSA: Room begins to accumulate for a Tax-free Savings Account (TFSA) as soon as you turn 18 (or from the time the TFSA was introduced). There is no action required to begin to accumulate the TFSA room.
  • FHSA: To begin to accumulate contribution room for an FHSA, you must open an account. If you open an account and do not contribute, the room is carried forward. Note that only $8,000 of room can be carried forward, and accounts can only remain open for 15 years. Also, since contributions don’t have to be deducted in the year they are made, it’s important to plan carefully to determine when you want to open this account and when you want to deduct contributions.  

Consider these scenarios:

  1. Irene opened an FHSA in 2023 but does not contribute until 2025. In 2025, Irene can contribute up to $16,0001. She can contribute for the current year, and she can contribute up to a max of $8,000 of carry-forward room. Irene can deduct the $16,000 from her income to reduce her taxable income that year, or she can carry that deduction forward to a year when she is in a higher marginal tax bracket.
  2. Raquel opened an FHSA in 2023 and contributed $5,000 but did not deduct it from her income. In 2024, Raquel contributes the maximum of $11,0002. In 2024, Raquel deducts the whole $16,000 from her taxable income. She carried the deduction forward since she knew she would make more money in 2024, and wanted to reduce her income that was subject to a higher marginal tax rate. This enabled Irene to save more tax.
  3. Silvio opens an FHSA in 2025. In 2025, Silvio can only contribute a maximum of $8,000 as he did not accumulate carry-forward room in either 2023 or 2024.
  4. Elena opened an FHSA in 2023 and contributed $4,000. She opens a new FHSA at a different institution in 2024. She can contribute up to $12,000 total in 20243. It is up to Elena to ensure she does not exceed her annual and lifetime maximum limits.
  5. Ross opened an FHSA in 2023 and contributed $5,000. He has done nothing else with his FHSA for 15 years and never buys a home. At the end of 15 years the $5,000 is worth $6,000. Ross must close his FHSA. He can either transfer the $6,000 to an RRSPor he can withdraw the $6,000 and add $6,000 to his taxable income that year.

Reminder: If you contributed in 2023, you do not have to deduct the contribution against your 2023 income when filing your 2023 taxes. If you think you will be subject to a higher marginal tax rate in 2024 or in future years, you can carry the deduction forward and use it to reduce your taxable income when you believe it will save you more tax.

Understanding the flexibility and nuances of the FHSA and how it differs from other registered plans will help you best leverage this account to help you meet your personal home-buying, tax-planning, and retirement-planning goals.

 

Julie Petrera, MBA, CFP, CIM is a certified financial planner. X (Twitter): @petrerajulie

1      $8,000 for the current year + a maximum of $8,000 in carry forward room = $16,000

2      $8,000 room - $5,000 used = $3,000 carried forward for 2023 + $8,000 room for 2024 = $11,000 room in 2024

3      8,000 room for 2023 - $4,000 used. $4,000 remaining for 2023 + $8,000 for 2024 = $12,000

4      Assume Irene is under 71 years old.