Maximizing Your First Home Savings: Combine the FHSA and HBP for Tax Savings and a Bigger Down Payment

Can You Use the FHSA and HBP Together to Buy Your First Home?

If you're planning to buy your first home, you're likely exploring ways to maximize your savings. One powerful strategy is combining the First Home Savings Account (FHSA) and the Home Buyers' Plan (HBP). These programs can work together to help you save tax-free and build the funds you need for a down payment.

FHSA deadline: 31st December

RRSP Deadline:

Let’s break down how the FHSA and HBP work, their differences, and how you can use both to achieve your homeownership goals.

Maximizing Your First Home Savings [FHSA + RRSP (HBP)]

What Is the First Home Savings Account (FHSA)?

Introduced in 2023, the FHSA is a tax-free savings account designed to help Canadians save for their first home. Here's how it works:

• Contribution Limits: You can contribute up to $8,000 annually, with a lifetime limit of $40,000. Unused contribution room can roll over to the following year (up to $8,000).

• Tax Benefits: Contributions are tax-deductible, and withdrawals for a qualifying home purchase are tax-free. Your investments in the FHSA also grow tax-free.

• Withdrawals: You can make single or multiple withdrawals, but you must complete a form (RC725) for each withdrawal. If the funds aren’t used for a home purchase, they will be taxed as income.

• Eligibility: To open an FHSA, you must:

  • Be a Canadian resident aged 18 or older (and under 71).

  • Not have owned a home where you lived in the current year or the previous four calendar years.

Important Rules:

• The property must be in Canada.

• You must buy or build the home by October 1 of the year following your withdrawal.

• The account must be closed after 15 years or when you turn 71.

• The FHSA investment window begins in the year you open the account, with a deadline of December 31.

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What Is the Home Buyers' Plan (HBP)?

The HBP allows first-time home buyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) for a home purchase, with some important conditions:

• Withdrawal Limit: You can withdraw up to $35,000 (or $70,000 for a couple). Withdrawals are tax-free as long as repayment rules are followed.

• Repayment Requirements: You must start repaying the withdrawn amount within five years and complete repayment within 15 years. Any unpaid amounts are added to your taxable income.

• Eligibility: To use the HBP, you must:

  • Be a Canadian resident and a first-time homebuyer.

  • Plan to use the home as your principal residence within one year of purchase.

• Other Rules:

  • The property must be in Canada.

  • The home must be purchased or built by October 1 of the year following the withdrawal.

  • You’ll need to complete a form (T1036) for each withdrawal.

    

    Contributions to FHSA

Key Differences Between FHSA and HBP

Feature	FHSA	HBP
Repayment Requirement	No repayment needed.	Repayment required within 15 years.
Tax Benefits	Contributions are tax-deductible; withdrawals are tax-free.	Withdrawals are tax-free but must be repaid.
Funding Source	New contributions.	Withdrawals from RRSP.
Maximum Contribution	$40,000 lifetime (plus growth).	$35,000 per person.

Combining FHSA and HBP to Buy a Home

The good news? You don’t have to choose between the FHSA and HBP—you can use both programs together to boost your down payment savings.

Example: A Couple Saving for Their First Home

Imagine a couple looking to buy a $750,000 home. To make a 20% down payment, they need $150,000. Here’s how they can combine the FHSA and HBP:

• Each partner contributes the maximum $40,000 to their FHSAs. If the funds grow through investments, their combined FHSA contributions could exceed $80,000.

• They each withdraw $35,000 through the HBP, totaling $70,000.

Total Down Payment: $150,000 ($80,000 from FHSA + $70,000 from HBP).By strategically using both accounts, they achieve their savings goal while maximizing tax benefits.

Maximizing Your First Home Savings - Combining FHSA & RRSP

Tips for Success

1. Start Early: The earlier you begin saving, the more time your investments have to grow.

2. Know the Rules: Ensure you meet all eligibility criteria and follow repayment schedules to avoid penalties.

3. Seek Professional Advice: A financial advisor can help you create a savings plan tailored to your goals.

   
   

Take the First Step Toward Homeownership

Homeownership might feel out of reach with rising home prices and inflation, but leveraging both the FHSA and HBP can bring your dream closer. Start saving today, and don’t hesitate to reach out for personalized advice. Book an appointment at antonyjohnpaul.com . Together, we can create a plan to help you open the door to your dream home.