What’s the difference between a FHSA, a TFSA and an RRSP?

For many, buying a home is a huge milestone, but it may not come easy. Canada’s new First Home Savings Account could help. Here’s a quick explainer to help you understand how it differs from other plans and accounts.

On April 1, 2023, the federal government launched a new savings program, the First Home Savings Account (FHSA), which allows prospective first-time buyers to save for a home tax free. Like many Canadians, you may have questions about how the new plan works, how it differs from existing registered savings accounts and whether or not the FHSA could be right for you.

To help you decide, we’ve compiled a quick guide.

What is an FHSA?

The new First Home Savings Account is a registered account, like a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). It can be seen as a hybrid version of these two other accounts, but is dedicated to helping you buy a home. For example, like a TFSA, the FHSA allows your savings to grow tax free without you having to pay additional tax when withdrawing funds to purchase a home. At the same time, like with an RRSP, funds contributed to an FHSA are tax deductible — meaning, your taxable income is effectively lowered by the contributions you make.

What are the rules?

To open an FHSA, you must be 18 years or older and a resident of Canada. You must also be considered a “first-time home buyer.” For the purposes of the FHSA, you may be considered a first-time home buyer if you have not owned (or co-owned) property in the year you opened your account, or at any point in the preceding four years. FHSA account holders can contribute up to $8,000 to their FHSA each year, up to a maximum of $40,000. This contribution room begins accumulating once an account is opened, even if you don’t begin making contributions right away. For instance, you can contribute $5,000 in the first year and then $11,000 ($8,000 yearly contribution limit + the remaining $3,000 from the year before) in the second year.

Contributions may be made with cash in hand or funds transferred from an RRSP, but there are stipulations if you transfer funds from an RRSP. Unlike other types of savings accounts, an FHSA can only be held for 15 years or until December 31 in the year you turn 71 — whichever comes first. If you do not purchase a home within that period, you’ll have to transfer the funds into (or back into) an RRSP.

If you are part of a couple looking to purchase a home, it’s important to note that both you and your partner may open your own accounts, provided you each qualify individually. As a couple, you can potentially double your tax-advantaged savings when it comes time to buy.

What’s the difference between an FHSA and a TFSA or RRSP?

FHSA account holders enjoy many of the same perks offered by the TFSA and RRSP Home Buyers’ Plan. For that reason, some might consider it the best of both worlds in certain situations.

For example, TFSA holders enjoy tax-free withdrawals at any time, but won’t receive a tax deduction for their contributions. Conversely, RRSP holders can claim their annual contributions against their income, but must pay tax on any withdrawals. With an FHSA, not only do you withdraw funds tax free when used to purchase a home, you can receive a tax deduction on your contributions to lower your taxable income.

Furthermore, although both the RRSP Home Buyers’ Plan (HBP) and the First Home Savings Account are available to help you purchase your first home, the RRSP Home Buyers’ Plan only allows you to borrow money from your RRSP — and you’ll be required to pay it back within 15 years. Assuming you do pay the funds back within the allotted time frame, you’ll still be responsible for paying tax when you withdraw those funds once more in retirement.

Here are some other key differences and similarities when the purpose of your savings is to buy a home:

	FHSA	RRSP Home Buyers’ Plan	TFSA
How does it help me buy a house?	Invest your contributions and use them for a home purchase.	Withdraw your RRSP investments temporarily and use them for a home purchase.	Invest your contributions and use them for a home purchase (or anything else you want).
What are the contribution rules?	$8,000 annual maximum contribution to a maximum of $40,000. The account can be held for 15 years.	You can borrow up to $60,000 from your existing RRSP, but the funds must be paid back within 15 years.	The contribution limit for 2025 is $7,000. Available contribution room accumulates starting the year you turn 18. No lifetime limit on contributions.
Who’s eligible?	Canadian residents aged 18 to 71 who have not owned a home in this or the past four calendar years.	Canadian residents who hold an RRSP. Neither you nor your spouse/common-law partner can have owned a home in this or the past four calendar years.	Any TFSA holder can use their funds to purchase a home. You can be a current homeowner and use the funds to buy another property.
Will I get a tax deduction?	Yes. Contributions are tax deductible (But not transfers from an RRSP). There is no tax on investment growth or on withdrawals for a home purchase.	Yes. Contributions to RRSPs are tax deductible. There is no tax on investment growth or on temporary withdrawals for a home purchase.	No. But there is no tax on investment growth or on withdrawals for a home purchase.
Key Advantages	Growth of tax-advantaged investments may mean more money for a home purchase.	Growth of existing tax-advantaged investments may mean more money for a home purchase or can be used for retirement.	Investments can be used for anything you like, including a home. No timeline means you can save for more than 15 years.
Limitations	If you don’t buy a home within 15 years, funds must be transferred to an RRSP.	Under the Home Buyers’ Plan, any RRSP withdrawals must be returned to your RRSP within 15 years.	Contributions are not tax deductible.

FAQs

Can I give my university-aged kid funds to open their own FHSA?
Yes. If you’re a parent or grandparent of someone looking to buy their first home, you may contribute funds to their FHSA via a cash gift, but you will not be able to open an account on their behalf. Unlike an RRSP, you don’t need income to be eligible for FHSA contributions.

If I owned a house 10 years ago, but sold it and have been renting since then, am I eligible?
Yes. Provided you did not own a home at any point in this or any of the last four years, you would be eligible to open an FHSA. Similarly, if you co-owned a home with a spouse or common-law partner and then divorced or separated, you may also be eligible, provided you no longer own the home.

If I open an FHSA, but don’t buy a home within 15 years, what happens to my contributions?
If you don’t purchase a home within the prescribed 15-year period, you’ll have to transfer the funds you have saved within your FHSA to an RRSP. You won’t get a second tax deduction for your contribution, but you won’t lose the money either. Essentially, once you contribute funds to an FHSA, those funds cannot be withdrawn as cash unless you are purchasing a home.

Ultimately, the First Home Savings Account can be a valuable tool for Canadians looking to purchase a home in a tax-advantaged way. If you have questions about whether or not an FHSA is right for you and what other saving strategies you may want to employ, you may want to consider speaking to a financial advisor.