What is the Difference Between the First Home Savings Account (FHSA) and Home Buyers’ Plan (HBP)?

What is the Difference Between the First Home Savings Account (FHSA) and Home Buyers’ Plan (HBP)?

Saving for your first home can be overwhelming, especially if you don’t know where to start. In Canada, there are two federal savings plans that can help you achieve your goal of homeownership: the First Home Savings Account (FHSA) and Home Buyers’ Plan (HBP). The best part is that eligible Canadians can use both plans simultaneously.

What is the First Home Savings Account (FHSA)?

Introduced in 2022, the purpose of the FHSA is to help first-time buyers save for a down payment. This registered savings plan functions similarly to a Registered Retirement Savings Plan (RRSP) as contributions are deducted from taxable income. Unlike with an RRSP, withdrawals from an FHSA are also tax-free as long as the funds are used to purchase a qualifying home.

Contribution room for the FHSA is $8,000 a year, up to a lifetime maximum of $40,000. One of the main benefits of this account is that there’s no obligation to repay withdrawn funds (which is not the case for the Home Buyers’ Plan).

Who is Eligible for an FHSA?

To be eligible in Alberta, an individual must:

  • Be a Canadian resident
  • Be between the ages of 18 and 71
  • Be a first-time homebuyer
  • Save $40,000 tax-free
  • No obligation to repay the funds once withdrawn
  • Investment earnings on the account are tax-free
  • Unused contribution room (maximum of $8,000) can be carried forward to the next calendar year
  • Funds can be transferred tax-free to an RRSP if the account holder decides not to use the funds to buy a home
  • FHSAs cannot be jointly held; only the account holder can make contributions, however, individuals can buy a home together using their individual FHSAs
  • If the individual has lived in a home owned by their spouse or common-law partner in the last four years, they are ineligible
  • There is a penalty for over-contributing to an FHSA
  • The FHSA cannot be used to buy an investment property

What is the Home Buyers’ Plan (HBP)?

The Home Buyers’ Plan allows Canadians to withdraw up to $35,000 from an RRSP for the purchase of a qualifying home. This program differs from the FHSA in that withdrawals under the HBP must be re-contributed into your RRSP over a period of 15 years (beginning two years after your withdrawal).

Who is Eligible for the Home Buyers’ Plan?

To be eligible in Alberta, an individual must:

  • Be a Canadian resident
  • Have a written agreement to buy or build a home
  • Occupy the home as a principal place of residence (or have a
    disabled relative occupy it)
  • Not have lived in a home owned by their spouse, common-law
    partner, or themself in the last four years
  • Save $35,000 tax-free
  • The account can stay open for 15 years
  • Funds can be used to buy (or help buy) a home for a related person with a disability
  • Buyers can re-participate in the program if they’ve repaid all borrowed funds from their HBP
  • All funds withdrawn through the program must be repaid to an RRSP within 15 years
  • Contributions must remain in the RRSP account for 90 days before they can be withdrawn under the HBP
  • Funds cannot be withdrawn from a locked-in or group RRSP
  • If the minimum BHP payment is not made, the minimum amount is added to the individual’s taxable income for that year

Overall, the FHSA and BHP are both great options to help you save for a down payment. They can also be used simultaneously, meaning that you can save up to $75,000 tax-free. When choosing a plan, make sure that you consider your circumstances and understand the eligibility rules.

It’s a good idea to discuss your options with a professional. Feel free to contact us so we can connect you to a trusted professional.