FHSA and HBP: the tax deduction most buyers leave on the table

Clara and Mathis had just gotten their offer accepted on a semi-detached home in Sherbrooke. Like most first-time buyers, they planned to use the Home Buyers’ Plan (HBP) to tap into their RRSPs: $60,000 each, the new limit since April 2024. Enough to cover a good chunk of their down payment without paying tax on the withdrawal.

What they didn’t know is that they were about to leave a tax deduction on the table. Our team caught it while reviewing their file a week before closing.

The HBP lets you withdraw up to $60,000 from your RRSP tax-free to buy a first home. But that withdrawal doesn’t generate any new deduction: Clara and Mathis had already claimed that deduction years earlier, when they made the original RRSP contributions. The HBP is essentially a loan you make to yourself, repayable to your RRSP over 15 years, at a minimum of 1/15 of the withdrawn amount each year.

The FHSA (Tax-Free First Home Savings Account) works differently. Every contribution earns a deduction in the year it’s made, up to $8,000 per year ($16,000 if unused room was carried over from the previous year), for a lifetime maximum of $40,000. And unlike an RRSP, there’s no rule forcing you to let the money sit before withdrawing it: a qualifying withdrawal for a first home purchase can follow the contribution by just a few days.

That’s where we stepped in. Clara and Mathis both had unused FHSA contribution room, but were planning to ignore it and withdraw their down payment directly from their RRSPs through the HBP. Our suggestion: route part of the HBP money through the FHSA before closing.

Concretely, for Mathis:

The money that was going toward the purchase anyway just takes a different path.

The result: Mathis gets an $8,000 tax deduction on his taxable income for the year, a deduction he never would have gotten by withdrawing that money straight through the HBP. The obligation to repay his RRSP over 15 years exists no matter which path the money takes, that part doesn’t change. The FHSA contribution is therefore a net gain, on two conditions: having unused FHSA contribution room, and having enough taxable income that year to make full use of the deduction.

Clara did the same with her own FHSA room. Together, the couple recovered several thousand dollars in additional tax deductions, without changing by a single dollar the amount actually available for their down payment.

This strategy has a narrow window. The FHSA withdrawal has to qualify, which means the buyer still has to meet the first-home criteria at the time of withdrawal, and the contribution and withdrawal need to happen before closing, not after. A contribution made after a first qualifying FHSA withdrawal, for instance, is no longer deductible. The order of operations matters as much as the amounts.

It’s the kind of adjustment that doesn’t show up on any bank form, and that a teller usually doesn’t have time to dig into with every client. It’s the kind of detail we catch by looking at the whole file, RRSP, FHSA, and purchase timeline included, rather than one piece at a time.

We’re mortgage brokers, not accountants or tax specialists. This article explains a possible strategy for informational purposes only: it doesn’t replace personalized tax advice. Actual available FHSA contribution room, withdrawal eligibility, and the exact impact on a tax return vary by situation. Before acting, always confirm the details with the Canada Revenue Agency, Revenu Québec, or a tax specialist.

Before withdrawing a dollar from your RRSP for a first home purchase, it’s worth checking three things with us:

These three factors determine whether the FHSA detour is worth it, and by how much.

Every file is different: RRSP and FHSA room already used, taxable income, purchase timeline, it all varies from person to person. Our team can review your situation with you and check whether this strategy applies to your case, ideally before you sign the offer to purchase. Let’s talk it through together. As you probably already know, our services are free.