FHSA vs RRSP: Which Is Better for Buying Your First Home?
If you’re saving for your first home in Canada, you now have two powerful tax-advantaged options: the First Home Savings Account (FHSA) and the RRSP Home Buyers’ Plan (HBP). Both give you a tax break. But they work very differently.
Here’s how to decide which one to use, or whether to use both.
FHSA: The Basics
- Annual limit: $8,000 (up to $8,000 carry-forward from unused prior year)
- Lifetime limit: $40,000
- Tax deduction: Yes, contributions reduce your taxable income (like RRSP)
- Tax on withdrawal: None, if used for a qualifying first home purchase
- Eligibility: Canadian resident, 18+, haven’t owned a home in current year or prior 4 years
- Account lifespan: Up to 15 years from opening, or until you turn 71
RRSP Home Buyers’ Plan (HBP): The Basics
- Withdrawal limit: Up to $60,000 tax-free from your RRSP
- Tax deduction: Yes, when you contributed to the RRSP
- Tax on withdrawal: None at the time, but you must repay over 15 years
- Repayment: Annual minimum repayment starts 2 years after withdrawal (or 5 years for recent withdrawals). Miss a payment and it becomes taxable income.
- Eligibility: First-time buyer or haven’t owned in 4+ years
Head-to-Head Comparison
| Feature | FHSA | RRSP HBP |
|---|---|---|
| Tax deduction on contribution | Yes | Yes |
| Tax on withdrawal for home | None | None (but must repay) |
| Repayment required? | No | Yes, over 15 years |
| Max available for home | $40,000 | $60,000 |
| Growth taxed? | Never (like TFSA) | Taxed when eventually withdrawn in retirement |
| Flexibility if you don’t buy | Can transfer to RRSP | Stays in RRSP |
The Key Advantage of FHSA
The biggest difference: FHSA withdrawals for a home purchase are permanently tax-free. There’s no repayment. The money comes out like a TFSA.
With the RRSP HBP, you get a tax-free withdrawal today, but you must repay your RRSP over 15 years. If you miss a payment, that amount is added to your taxable income.
When RRSP HBP Still Makes Sense
- You need more than $40,000 and already have RRSP savings
- You’ve been contributing to RRSP for years and have a large balance
- You’re buying soon and don’t have time to build FHSA room
Best Strategy: Use Both
There’s no rule against using FHSA and HBP together. If you qualify for both:
- Max FHSA first ($8,000/year). The tax treatment is strictly better.
- Use RRSP HBP for the gap. If you need more than what FHSA provides, tap your RRSP.
- Combined, you could access up to $100,000 ($40,000 FHSA + $60,000 HBP) tax-free for your first home.
Planning to buy your first home? Book a free consultation with FinGems and we’ll map out the best combination for your timeline and budget.