FHSA vs. RRSP: the best way to save for your first home

Both accounts give you a deduction now and cash for a down payment later. Only one of them lets you keep the money.

The structural difference

An FHSA contribution is deducted from your taxable income like an RRSP contribution, grows tax-free, and comes out tax-free when you buy a qualifying first home. There is no repayment. The Home Buyers’ Plan is a loan from your own RRSP: up to $60,000, tax-free on withdrawal, but you must put it back over fifteen years starting in the fifth year after the withdrawal.

Miss an HBP repayment and the shortfall is added to your income for that year and taxed at your full marginal rate. The FHSA has no equivalent trap.

Use both, in this order

1. Open the FHSA now, even with $100. Room only starts accruing once the account exists — an unopened FHSA earns you nothing.
2. Fill the $8,000 annual FHSA room first. It is the only account that is deductible in and tax-free out.
3. Contribute to your RRSP with anything left, and plan an HBP withdrawal on top of the FHSA.
4. Keep the FHSA deduction for a high-income year if you can afford to. The deduction can be carried forward.

A couple who each maximise both can assemble $200,000 tax-sheltered: $40,000 of FHSA plus $60,000 of HBP each. That is enough for 20% down on a $1,000,000 property with closing costs left over.

The deduction timing trick

An $8,000 FHSA contribution claimed at a 31% marginal rate is worth $2,480. Claimed at a 43.4% rate it is worth $3,472 — the same deposit, a thousand dollars better. Because FHSA deductions can be carried forward indefinitely, a student or early-career saver can contribute now and claim the deduction after a raise.

When the RRSP wins outright

If you already have a large RRSP balance and you are buying within a year, the HBP gets you to $60,000 immediately while the FHSA is capped at $8,000 a year. Time is the constraint that decides it.