If you're planning to buy your first home in Canada within the next few years, two accounts should be on your radar: the First Home Savings Account (FHSA) and your RRSP through the Home Buyers' Plan (HBP).
Both can help you build a down payment while receiving valuable tax benefits—but they work differently.
What Is an FHSA?
The First Home Savings Account was specifically designed to help eligible Canadians save for their first home.
You can contribute up to $8,000 per year, with a $40,000 lifetime contribution limit.
The major advantage is that you essentially get benefits from both an RRSP and a TFSA:
Your contributions can reduce your taxable income, your investments can grow tax-free, and qualifying withdrawals to purchase your first home are tax-free.
The biggest benefit is you don't need to be repay it!!
How Is an RRSP Different?
Eligible first-time buyers can also use the RRSP Home Buyers' Plan, which currently allows you to withdraw up to $60,000 from your RRSP toward purchasing a qualifying home.
The key difference is repayment.
Money withdrawn through the Home Buyers' Plan generally needs to be repaid to your RRSP over a 15-year period. Required amounts that aren't repaid are generally included as taxable RRSP income for that year.
An FHSA qualifying withdrawal doesn't have this repayment requirement.
FHSA vs. RRSP at a Glance
FHSA
Up to $8,000 in contributions per year
$40,000 lifetime contribution limit
Contributions are generally tax-deductible
Qualifying home-purchase withdrawals are tax-free
No repayment required
RRSP Home Buyers' Plan
Up to $60,000 can be withdrawn under the HBP
RRSP contributions may provide a tax deduction
Eligible HBP withdrawals aren't immediately taxed
Withdrawals generally need to be repaid over 15 years
Can You Use Both?
Yes. If you're eligible, you can potentially use both an FHSA and the RRSP Home Buyers' Plan toward the same qualifying home purchase.
That makes understanding these accounts particularly important if you're planning to buy your first home within the next few years.
For many prospective buyers, opening an FHSA sooner rather than later can also be important because FHSA contribution room only begins accumulating after you open your first FHSA. MAX out your FHSA first, then your TFSA, and then your RRSP.
Planning to Buy Your First Home?
Saving the down payment is only one part of buying your first property. Understanding your mortgage qualification, closing costs, available programs and the actual cost of homeownership is just as important.
At Crozier Realty, we help first-time buyers throughout Mississauga, Etobicoke and the GTA West understand the process and build a plan before they start shopping.
Thinking about buying your first home?
Let's build your home-buying plan.
