Thinking of opening an FHSA? Almost half a million people had the same idea in its first year

In its first year, the Tax-Free First Home Savings Account (FHSA) has seen a significant uptake among Canadians, with nearly 1 million individuals opening accounts to save for their first home. The FHSA allows annual contributions of up to $8,000, with a lifetime maximum of $40,000, offering tax-free growth and withdrawals when used for a qualifying home purchase.

Data from the Canada Revenue Agency (CRA) indicates that by the end of 2023, approximately 625,000 Canadians had active FHSAs, collectively holding $2.37 billion. The average account balance stood at $3,792, while the median was $2,040. Notably, around 272,000 account holders had balances between $5,001 and $10,000.

The FHSA has garnered particular interest among younger Canadians. A BMO Investment Survey revealed that 56% of potential first-time homebuyers plan to utilize the FHSA, with 48% of Gen Z respondents indicating familiarity with its features. Additionally, 23% of parents expressed intentions to use the FHSA to assist their children in saving for a home.

Financial experts highlight the FHSA's flexibility. If funds are not used for a home purchase within 15 years, they can be transferred to a Registered Retirement Savings Plan (RRSP) without tax penalties, allowing for continued tax-sheltered growth.

The FHSA can be combined with other savings strategies, such as the Home Buyers’ Plan (HBP), which permits withdrawals of up to $35,000 from an RRSP for a down payment. However, financial advisors caution that maximizing contributions across multiple accounts may be challenging for some, emphasizing the importance of balanced financial planning.

As housing affordability remains a pressing issue, the FHSA represents a valuable tool for Canadians aiming to enter the housing market. Its tax advantages and flexibility make it an attractive option for first-time buyers seeking to accumulate a down payment.