Can you use the FHSA and HBP together?
Sponsored By
Fidelity Investments Canada ULC
The new FHSA can help you save for a down payment in Canada. Here’s how it fits with other government programs, like the Home Buyers’ Plan.
Sponsored By
Fidelity Investments Canada ULC
The new FHSA can help you save for a down payment in Canada. Here’s how it fits with other government programs, like the Home Buyers’ Plan.
If you’ve been saving up to buy your first home, you’ve probably looked into the most effective ways to invest your money and come up with a solid down payment. You may also have explored programs for first-time home buyers—after all, every little bit helps, especially in a challenging housing market.
One recently introduced investment option is the first home savings account (FHSA), a tax-free registered account that’s designed to help first-time home buyers save for a down payment. An account holder can contribute up to $8,000 per year to an FHSA, up to a lifetime maximum of $40,000 (double that if you’re part of a couple and you’re both first-time home buyers). As long as these funds are eventually used to purchase your first home, deposits and withdrawals are tax-free. (Most registered accounts allow for one or the other, but the FHSA allows for tax sheltering on contributions and withdrawals.) This includes any income earned from interest, dividends or capital gains. The FHSA was launched in Canada in April 2023, and it’s currently available through Fidelity Investments and other financial institutions.
The Canadian government already had a few tools and programs for first-time home buyers, including the Home Buyers’ Plan (HBP) and First-Time Home Buyer Incentive (FTHBI), so you may be wondering how the FHSA fits in. We’ve got answers to your FHSA questions, including how first-time buyers can use these programs together.
The FHSA is a fairly new financial product, but the Home Buyers’ Plan has been available to Canadians since 1992. The HBP is essentially a loan from your RRSP without any taxation or early withdrawal penalties. Here’s how it works.
If you’ve been saving money in an RRSP (registered retirement savings plan), you can “borrow” up to $35,000 of those funds to put towards a down payment on the purchase of a qualifying home. So, you will have to pay it back. A “qualifying home” includes most residential properties such as condos, townhomes, semi-detached houses and detached homes, which can be new builds or previously owned. You must be a first-time home buyer, which is defined as someone who hasn’t owned a home in the past four years, and also be a resident of Canada. If you’re using the HBP to purchase your first home with a spouse or common-law partner, you also cannot have lived in a home owned by your partner during this four-year period.
Once you’ve withdrawn money from your RRSP under the HBP, you have up to 15 years to complete your HBP repayment. This essentially means you have to contribute an equal or greater amount of funds back into your RRSP in that 15-year period.
While initial reports suggested that the FHSA could not be used in conjunction with the HBP, the government has since clarified that these programs can be used together (as long as you meet all of the conditions for each program). So, if you’ve got $35,000 available in your RRSP and $25,000 saved in an FHSA, you can put $60,000 towards the down payment of your first home with no impact on your income tax. You’d just have to re-contribute $35,000 or more to your RRSP within the next 15 years to fulfill your HBP repayment obligation.
But wait—there’s more.
The First-Time Home Buyer Incentive was launched in 2019 as part of Canada’s National Housing Strategy. It’s a temporary federal program that provides qualifying first-time home buyers with a loan that serves as down payment assistance, and it can be used along with the FHSA and other government programs. The FTHBI deadline was recently extended from September 2022 to May 2025.
FTHBI defines a first-time home buyer as any individual who has never owned a home or a former home owner who has gone through a divorce or breakdown of a common-law partnership, or a person who has not lived in a home that they or a spouse/common-law partner owned during the past four years. The criteria to receive an FTHBI loan also includes having a household income of less than $120,000 and needing to borrow less than 4.5 times your annual household income. You must meet the same minimum down payment rules as other home buyers in Canada.
If you qualify for the FTHBI, the government lends you money towards the purchase price of the property: up to 5% if purchasing an existing home, and up to 10% if buying a new-construction build. Borrowers aren’t charged any interest on these loans, which makes them appealing to a lot of prospective home owners, and they don’t have to make ongoing payments. However, they do have to repay the incentive eventually—either when they sell the house or 25 years after the loan is issued, whichever comes first. That could mean having to pay one big lump sum, or a significant impact to your finances if you have to sell the house earlier than anticipated.
The FTHBI is not right for everyone—it’s best to speak to a financial advisor for personalized advice.
If you don’t mind memorizing one more acronym: in addition to the FHSA, HBP and FTHBI, there’s also HBTC, or the Home Buyer’s Tax Credit. While this program won’t help you purchase a home, it can put a little money back into your pocket by providing a tax credit of up to $1,500. That’s a significant amount of money for many home owners, so it’s something to keep in mind once you officially sign those mortgage papers. This credit can be used no matter how you purchased your house, as long as you meet the eligibility criteria.
There’s a lot to navigate when buying your first home, but by using the FHSA, HBP and FTHBI together, you’ll be able to use as many resources as possible while maximizing your buying power. Not only can this get you into your first home sooner, but it may help broaden your search by increasing your budget and having access to more of the real estate market. It’s like we said earlier—every little bit helps. Good luck out there!
This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers and approved by the client.
The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.
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