What Happens If You Don’t Buy a Home With Your FHSA?

An FHSA can help an eligible first-time home buyer save for a qualifying home. But plans can change, and the account cannot stay open indefinitely. If you do not buy a home, your options depend on the account deadline, whether you transfer the balance directly to another registered plan, and whether you take a taxable withdrawal.

This article summarizes general Canada Revenue Agency (CRA) rules. It is educational information, not tax or investment advice. Check current CRA guidance and speak with your FHSA issuer before arranging a transfer or withdrawal.

When does an FHSA have to close?

Your maximum participation period ends on December 31 of the year in which the earliest of these events occurs:

• The 15th anniversary of the date you opened your first FHSA;
• The year you turn 71; or
• The year following the year of your first qualifying FHSA withdrawal.

Keep track of the date you opened your first FHSA, even if you opened additional FHSAs later or did not contribute right away. If you make a qualifying withdrawal to buy a home, the deadline may arrive much sooner than the 15-year limit.

If you do not buy a home: direct transfer options

If you still have FHSA property and do not make a qualifying home purchase, you may generally be able to transfer it directly to your own RRSP or RRIF without an immediate tax inclusion, provided the transfer meets CRA rules and you do not have an excess FHSA amount. A qualifying direct transfer generally does not use your available RRSP deduction room.

The transfer must be arranged between the financial institutions. Do not withdraw the money to your bank account and then contribute it to an RRSP or RRIF expecting the same tax treatment. That is not a direct transfer and can result in a taxable FHSA withdrawal as well as a new RRSP contribution. Ask your issuer which transfer form or process it requires; CRA lists Form RC721 for these transfers.

What if you withdraw the money in cash?

A withdrawal that is not a qualifying withdrawal, designated withdrawal, or another amount already included in income is generally taxable. You must include it in income for the year you receive it. Tax withholding by the issuer may apply, and the amount withheld is generally credited on your tax return toward tax owing.

If property remains in an FHSA after the maximum participation period ends, the account loses its FHSA status. The fair market value of the property at that time may have to be included in income. Plan the transfer or withdrawal with your issuer before the deadline to avoid an unintended tax result.

If you do buy a qualifying home

A qualifying withdrawal has its own conditions. These include a written agreement to buy or build a qualifying home, the applicable acquisition or completion timing, Canadian residency conditions, an intention to occupy the home as your principal residence within one year, and providing your issuer with Form RC725. A qualifying withdrawal is not repayable, and it cannot be undone by putting the money back into the FHSA.

You may be able to use an FHSA qualifying withdrawal and the RRSP Home Buyers’ Plan for the same home if you independently meet the rules for each. Confirm the conditions with CRA and your plan issuers before requesting withdrawals.

Questions to ask before your FHSA deadline

• When did I open my first FHSA, and what is my maximum participation period end date?
• Do I have any excess FHSA amount that could affect a transfer?
• Can my issuer arrange a direct transfer to my own RRSP or RRIF before the deadline?
• If I am buying, do I meet every qualifying-withdrawal condition, and have I submitted the right form?
• How will a cash withdrawal or account closure be reported on my tax return?

Review the CRA pages on when and how to close an FHSA, FHSA withdrawals and transfers, and FHSA eligibility. You can also review Smile Insurance’s FHSA planning overview, compare it with the RRSP and TFSA pages, and read our guide to RESP withdrawals.

If you would like to discuss your general savings-planning questions with Smile Insurance, request a conversation. Before sending private financial or tax details through a general form, ask which secure channel to use.