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Navigating Canada's Tax-Free First Home Savings Account (FHSA)

May 22, 2024 | Posted by: Angela Robinson

For first-time homebuyers in Canada, saving up for a down payment just got a bit easier with the introduction of the Tax-Free First Home Savings Account (FHSA). However, understanding the intricate rules surrounding this account can be a bit daunting. Let’s break it down.

Qualifying Withdrawals: The Fine Print

One of the complexities of the FHSA lies in the rules governing withdrawals. When a client is ready to dip into their FHSA to purchase their first home, there are specific conditions they must meet. To initiate a tax-free 'qualifying withdrawal,' a FHSA holder must complete Form RC725, which outlines the conditions for making such a withdrawal. Importantly, it's the responsibility of the FHSA holder, not the issuer, to ensure all criteria are met.

Conditions for a Qualifying Withdrawal

Several conditions must be met for a withdrawal to qualify as tax-free. Firstly, the FHSA holder must be a Canadian resident at the time of the first qualifying withdrawal and remain so until the acquisition of the home. Additionally, they must be a first-time homebuyer, defined as someone who hasn't owned their principal place of residence in the current year or the previous four years.

Interestingly, living in a home owned by a spouse or partner doesn't affect one's status as a first-time homebuyer. The FHSA holder must also have a written agreement to buy or build a qualifying home, with certain timelines in place for acquisition or construction completion.

Late Home Acquisition and Intent

What if the home isn’t acquired within the specified timeline? The Canada Revenue Agency (CRA) evaluates the taxpayer's circumstances to determine if they still meet the qualifying withdrawal conditions. Intent plays a significant role here; if circumstances beyond the holder's control delay the acquisition, they may still qualify.

Using Withdrawn Funds

There's no requirement to use funds withdrawn from the FHSA specifically to purchase a home. As long as the conditions for a qualifying withdrawal are met, the funds can be utilized as the holder sees fit.

Overview of FHSA Rules

In essence, the FHSA operates similarly to an RRSP, with tax-deductible contributions and tax-free withdrawals for home purchases. Contribution room accumulates annually, with limits on both annual and lifetime contributions. Any unused contribution room can be carried forward.

Importantly, funds not withdrawn for a home purchase can be transferred tax-free to an RRSP or RRIF until a specified deadline. It’s worth noting that both the FHSA and the Home Buyers’ Plan can be used to purchase the same home.


While the Tax-Free First Home Savings Account offers a valuable opportunity for first-time homebuyers to save, its rules and conditions require careful navigation. By understanding the criteria for qualifying withdrawals and the flexibility offered in fund usage, potential homeowners can make the most of this savings tool on their journey to homeownership.

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