The FHSA will allow Canadian residents over age 18 to contribute up to $8,000 per year, to a maximum contribution of $40,000, towards their first home.1 Contributions will be tax deductible, similar to the RRSP, and qualified withdrawals will be tax free, similar to the TFSA. The FHSA can remain open for 15 years.

One constraint is that the proposed rules do not permit use of the existing Home Buyers’ Plan (HBP) alongside the FHSA. The HBP allows first-time buyers to withdraw up to $35,000 from the RRSP, subject to repayment in 15 years and other conditions. This has prompted the question: will the FHSA or RRSP/HBP be a better savings vehicle?

All things equal, the FHSA’s structure appears to be more beneficial given the tax-free benefit for a qualified withdrawal when funds are used to purchase a first home. However, whether the FHSA or RRSP/ HBP offers greater benefits is likely to depend on various factors, including available income/cash flow, timing of a home purchase, marginal tax rate, current/potential tax bracket, other income-tested benefits (such as child benefit payments), etc.

Under the proposed rules, there will be an option to move funds from one’s RRSP to the FHSA, subject to FHSA annual and lifetime contribution limits; however, these transfers would not restore an individual’s RRSP contribution room. If not used for a first-home purchase, the FHSA may be transferred to the RRSP after 15 years without affecting RRSP contribution room.

In thinking ahead, there may be ways to help maximize the value of the FHSA. Consider starting early to take advantage of compounding over time, as the FHSA can stay open for 15 years. If the FHSA isn’t used, funds can be transferred to the RRSP (or taxes paid on withdrawals). As well, try to maximize the annual limit. The more you save from the onset, the greater potential benefit you may achieve from compounded growth. Annual contributions are limited to $8,000 and unused contribution room does not carry forward.