Home / Blog / FHSA Myths Debunked
Tax Planning
January 15, 2025
Quantum Accounting Team
5 Minutes Read
The First Home Savings Account (FHSA) is a powerful savings tool designed to help Canadians purchase their first home. It combines features of both RRSPs and TFSAs, offering significant tax advantages when used correctly.
However, the rules surrounding the FHSA can be confusing, leading to common misconceptions that may limit its benefits or result in unexpected tax consequences.
In this guide, we break down the most common FHSA myths and explain the reality behind them so you can make informed financial decisions.
FHSA contributions must be made by December 31 of the tax year to qualify for a deduction. Unlike RRSPs, there is no grace period extending into the following year. Missing this deadline means losing the deduction opportunity for that year.
Unused FHSA contribution room only carries forward if the account is already opened and only for one additional year. This is very different from RRSPs and TFSAs, where unused room accumulates indefinitely.
While the FHSA is intended for first-home purchases, funds can technically be withdrawn for other purposes. However, non-qualifying withdrawals are fully taxable and remove the key benefit of the account.
Eligibility rules apply when opening an FHSA. You must not have owned a home in the current year or the previous four years. If the funds are not used for a qualifying purchase, they must eventually be transferred to an RRSP or RRIF.
Opening an FHSA does not allow you to contribute the full lifetime limit immediately. Contributions are capped at $8,000 per year, and unused room does not exist until the account is opened.
Although RRSP funds can be transferred into an FHSA without triggering taxes, the transferred amount counts toward both the annual and lifetime FHSA limits. This transfer does not create extra contribution room.
The FHSA is a valuable but rule-driven savings vehicle. Understanding its limitations, deadlines, and eligibility requirements is essential to avoid lost contribution room or unexpected taxes. Professional guidance can help ensure you maximize its benefits while staying compliant.
Our advisors can help you understand FHSA rules, contribution strategies, and long-term tax planning. Book a consultation today.
