FHSA and Home Buyers' Plan for a first home in Muskoka

The short answer

The First Home Savings Account (FHSA) and the Home Buyers’ Plan (HBP) are two federal programs that can help fund the down payment on a first home. The FHSA has an annual contribution limit of $8,000 and a lifetime limit of $40,000. The HBP lets you withdraw up to $60,000 from your RRSPs and repay it over 15 years. Each program has its own test for who counts as a first-time buyer. The CRA says both can be used for the same qualifying home when the conditions are met at each withdrawal.

Nothing here is specific to Muskoka. The programs apply to a qualifying home anywhere in Canada. This page is general information. An accountant can confirm how the rules apply to your situation. For the wider picture, see the first-time home buyers guide.

How the FHSA works

The FHSA is an account you open with an issuer. To open one you must be 18 or older, a resident of Canada and a first-time home buyer for FHSA purposes.

The CRA states the limits this way:

• The annual contribution limit is $8,000.
• Participation room in the year you open your first FHSA is $8,000.
• Unused room carries forward, capped at $8,000, so no more than $16,000 can go in during one year when a full year of room was unused.
• Total participation room is capped at $40,000.

The arithmetic follows directly. At $8,000 a year, reaching the $40,000 lifetime limit takes 5 years of full contributions, because 5 times $8,000 is $40,000.

Contributions can be deducted in the year you make them or in a later year. Amounts you do not deduct carry forward. Only the account holder may claim the deduction. The CRA also lists what is not deductible: RRSP-to-FHSA transfers, contributions made after the first qualifying withdrawal, contributions over the $40,000 lifetime limit and fees and borrowing interest.

Who qualifies as a first-time buyer for the FHSA

The CRA test looks back over a window of years. You qualify if you did not live, at any time in the current calendar year before you opened the account or in the 4 prior calendar years, in a qualifying home that you owned as your principal residence. When you open the account, the same test applies to a home owned by your spouse or common-law partner.

The CRA defines a qualifying home as a housing unit in Canada, existing or being built. That covers houses, semi-detached homes, townhouses, mobile homes and condominium units, along with units in buildings from duplexes to apartment buildings. A co-op share that gives only a tenancy does not qualify.

Making a tax-free FHSA withdrawal

A withdrawal is tax-free when it is a qualifying withdrawal. The CRA lists these conditions:

• You meet the same ownership test, ignoring the 30 days before the withdrawal.
• You have a written agreement to buy or build, with closing or completion before October 1 of the year after the withdrawal.
• You did not acquire the home more than 30 days before the withdrawal.
• You stay a Canadian resident until the home is acquired.
• You intend to occupy the home as your principal residence within 1 year.
• You give Form RC725 to the issuer.

A withdrawal that does not qualify is taxed as income in the year you receive it. After the first qualifying withdrawal, the CRA says to close all FHSAs by December 31 of the following year.

How the Home Buyers’ Plan works

The HBP lets you take money out of your RRSPs to buy or build a qualifying home without paying tax on the withdrawal. The limit is $60,000 and the repayment period is 15 years. The Financial Consumer Agency of Canada states that the $60,000 figure applies to withdrawals after April 16, 2024.

Repaying $60,000 over 15 years works out to $4,000 a year, because $60,000 divided by 15 is $4,000.

The CRA also describes temporary relief. For first withdrawals from January 1, 2026 to December 31, 2028, the 15-year repayment starts in the fifth year after the year of the first withdrawal rather than the second.

Who qualifies as a first-time buyer for the HBP

The HBP test is similar to the FHSA test but is measured at the time of the withdrawal. You qualify if you did not live in a home as your principal residence that you owned or that your current spouse or common-law partner owned in the current calendar year before the withdrawal (excluding the 30 days before it) or in the 4 prior calendar years. The CRA notes exceptions for specified disabled persons and for some relationship breakdowns.

The CRA lists further conditions:

• A written agreement to buy or build must exist when you withdraw. A pre-approval does not count.
• You must be a Canadian resident.
• You must acquire the home before October 1 of the year after the year of your first withdrawal, with some extensions.
• You must intend to occupy the home within 1 year.
• Any earlier HBP balance must be zero on January 1 of the withdrawal year.
• You can withdraw only from RRSPs where you are the annuitant, using Form T1036 for each withdrawal.

Using both for one home

The CRA says qualifying FHSA withdrawals and the HBP can both be used for the same qualifying home. Under the stated limits, the most that could come from the two programs is $40,000 from the FHSA plus $60,000 from the HBP, which is $100,000. That total assumes the full lifetime FHSA room was used and that each program’s conditions were met. It is a ceiling set by the limits, not an amount any buyer should expect.

The two programs measure first-time status in different ways, so one can apply when the other does not. Confirm each test before you rely on either one.

What to check before you buy in Muskoka

• Whether you meet the FHSA test, the HBP test or both, on the dates the CRA uses.
• Whether your written agreement to buy and your closing date fit the October 1 deadlines.
• Whether the home you have in mind qualifies and whether you intend to occupy it within 1 year. For a property you plan to use differently, confirm with an accountant.
• Your repayment plan, if you use the HBP.

Next steps

Ask Kandice or Kirby how these programs fit with the other first-time buyer measures, such as the Ontario land transfer tax refund. For mortgage questions, see mortgages. For the closing costs side of a purchase, read the land transfer tax and closing costs post.