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Homeownership in Canada is becoming increasingly rare among young adults. According to the Financial Post, Canadians aged 25 to 39 not only had the lowest homeownership rate, but also suffered the most significant decline in homeownership of all age groups from 2011 to 2021.
But there is a silver lining that arrived in 2023: the First Home Savings Account (FHSA). This Canada-only savings account blends the best of both worlds -- tax-deductible contribution plus tax-free growth and withdrawals for the downpayment of your first home purchase. If you haven’t opened an FHSA yet, here’s exactly why you should make it your priority in 2025.
What Is the FHSA (First Home Savings Account)?
The FHSA Canada plan is a tax-advantaged account for future homeowners. Your contributions are tax-deductible like an RRSP but earnings inside the account grow tax-free like a TFSA. When you withdraw for your first home, that's tax-free too.
- Annual contribution limit: $8,000
- Lifetime maximum: $40,000 (5 years)
- Unused contribution room carries forward but only for a maximum of $8,000.
Why You Should Open an FHSA in 2025
1. Capture $8,000 Annual FHSA Contribution Room
You lose $8,000 of tax-free growth opportunity when you don't open an FHSA account. Open your FHSA in 2025 today to lock in that full contribution space.
2. It Reduces Your Tax Burden
Suppose you earn $60,000 per year in Ontario and contribute the full $8,000 to your FHSA in 2025. Your taxable income drops to $52,000 as a result. Based on 2025 tax brackets in Ontario, that contribution could reduce your combined federal and provincial tax bill by about $1,800–$2,000.
In other words, the FHSA gives you an immediate tax break today. And the best part? You can use those savings of $1,800–$2,000 for your FHSA contributions next year or for any immediate spending needs!
3. Earn Tax-Free Growth on Your Down Payment Savings
You can invest your FHSA in stocks, ETFs or equities and watch it grow tax-free until you're ready to buy your home. So if you've contributed the full $40,000 and your portfolio grows to $80,000, you pay zero tax on that 2x growth.
4. Supercharge Your Savings with the TFSA + RRSP Combo
Smart savers use all three:
- TFSA for flexibility,
- RRSP for long-term retirement tax deductions,
- FHSA for your first home.
It's the triple-account strategy that maximizes your tax efficiency.
5. Plan Ahead, Even If You’re Not Ready to Buy
You have up to 15 years to use your FHSA. No purchase yet? No problem. You can roll the funds into your RRSP later without penalty or tax trouble.
6. Housing Costs Aren’t Cooling Off
Pressure isn’t easing anytime soon. The FHSA gives your savings a tax-protected and time-protected advantage, making homeownership more achievable.
Where to Open an FHSA in Canada
Not every broker or platform offers the option to open an FHSA. Luckily for Canadians, two of the most popular options do offer it:
- Wealthsimple FHSA for easy-to-use, app-driven, ideal for beginners. Invest with just $1 and manage via mobile or web.
WealthSimple Referral Code: Open a Wealthsimple FHSA and get $25 free when you fund any account with just $1!
- Questrade FHSA for zero-cost trades and ETF flexibility if you’re a more active investor.
Questrade Referral Code: Open an Questrade account using code 335921827487320 and get $50!
FHSA Strategy: How to Use It Based on Your Timeline
How you invest in your FHSA is heavily dependent on when you see yourself buying a home. But to sum it up, the closer you are to planning on making your home purchase, the more conservative you should be. If you're not planning on buying a home anytime soon, you can afford to be a bit of a risk taker.
Buying a Home in the Next 1–2 Years
- Contribute what you can, but prioritize safety. Keep most of your FHSA in cash, GICs, or a high-interest savings ETF to avoid market swings. One great option is CASH.TO (Global X High Interest Savings ETF) which largely remains the same price, but offers an annualized dividend of 2.55%.
- The tax deduction on your contributions still lowers your taxable income immediately, even if your investments don’t grow much.
- Focus on locking in contribution room now, so you don’t lose it.
Buying a Home in 3–5 Years
- This is the sweet spot for an FHSA. You have enough time to invest in a balanced portfolio (ETFs, dividend stocks, or conservative index funds).
- Growth has time to compound, but risk is still moderate.
- By the time you’re house-hunting, you could have grown your FHSA well beyond your original contributions.
Buying a Home in 5+ Years
- Treat your FHSA like a growth account. A diversified ETF or equity-heavy strategy can double your savings over time. If you can fathom the risk, consider investing in some moonshot stocks as well.
- Even if you later decide not to buy, you can roll funds into your RRSP tax-free making this a no-lose account.
- This strategy maximizes both the tax deduction now and the tax-free compounding later.
FAQ — FHSA Canada 2025
Q: Who qualifies for an FHSA in Canada?
A: You must be a Canadian resident, at least 18 years old, and a first-time homebuyer, meaning you haven’t owned a home in the last four years.
Q: What are the contribution limits for FHSA 2025?
A: You can contribute up to $8,000 per year, with a maximum lifetime contribution of $40,000. Unused room rolls forward, so the sooner you start, the more you benefit.
Q: Can I still use a TFSA and RRSP if I open an FHSA?
A: Absolutely. The FHSA is in addition to your TFSA and RRSP. You can contribute to all three in the same year if your budget allows.
Q: What if I don’t end up buying a home?
A: After 15 years (or by age 71), you can transfer your FHSA savings into your RRSP or RRIF tax-free, preserving the tax advantage.
Q: Can I withdraw my FHSA to my TFSA or chequing account?
A: Technically yes, but it’s not advantageous. If you withdraw FHSA funds directly to a TFSA or chequing account, the withdrawal is treated as taxable income for that year, meaning you’ll lose the tax benefits. The only tax-free options are using the funds for a qualifying first home purchase, or transferring them into your RRSP or RRIF (if you don’t buy a home within 15 years or by age 71).
Q: How does FHSA compare to the RRSP Home Buyers’ Plan?
A: The RRSP Home Buyers’ Plan allows you to withdraw funds from your RRSP for a home with the caveat that you have to repay it back. The FHSA offers tax-free withdrawals without any repayment requirement provided you are using it for a home purchase.
Q: If I only contribute $2,000 in my first year and $7,000 in my second year, can I contribute more than $16,000 in my third year?
A: No. Here’s how the FHSA rollover works:
- Year 1 → You contribute $2,000. Unused $6,000 carries forward.
- Year 2 → New $8,000 room + $6,000 carry = $14,000 available. You contribute $7,000, leaving $7,000 unused. (By the end of Year 2, you’ve contributed $9,000 out of the possible $16,000 over two years)
- Year 3 → You get another $8,000 of new room. Carryforward is capped at up to $8,000, but you only have $7,000 unused. Therefore, your Year-3 limit is $15,000 ($8,000 new + $7,000 carry), not $16,000.
Bottom line: You can carry forward up to $8,000 of unused FHSA room into a new year, but only the amount you actually have unused from the previous year alone.
Disclaimer: The information in this article is provided for educational purposes only and does not constitute financial advice. Please do your own research or consult a licensed financial advisor before making any investment or financial decisions.