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Understanding the Difference Between the FHSA and HBP for First-Time Home Buyers in Saskatchewan

By brynisask on Friday, June 28, 2024

First-time home buyers in Canada have two separate tax-exempt accounts they can choose from to help them save for a down payment on their home purchase. It is important to understand each of these financial tools independently and how they can work together to assist in purchasing a home. These two key programs are the First Home Savings Account (FHSA) and the Home Buyers’ Plan (HBP). 

What is the First Home Savings Account (FHSA)?

The First Home Savings Account was more recently established to help Canadians save for the down payment on their first home. If the potential buyer is 18+ and hasn’t owned a home ever, or at minimum, in the last 4 calendar years, they can contribute up to $8,000 annually to a maximum of $40,000 into their FHSA. Contributions less than $8,000 per year can be carried over to the next year to allow for more contribution room, if required. 

The true power of the FHSA is that any contribution you make to the FFSA, creates an income tax shelter equivalent to the amount of your contribution in that year.  For example, if you contribute the maximum $8,000 in 2024, and you are in an income tax bracket of 35%, you will save $2,800 in income tax when you file your 2024 taxes.  This is free money that you can choose to use toward your 2025 FHSA purchase, use it to purchase RRSPs, pay down credit card debt, or do whatever you would like with it.  When you redeem the FHSA at home purchase time, there is nothing payable back to Canada Revenue Agency (CRA) as any amounts withdrawn from this account for the purchase of a first home are tax exempt, including any interest accrued in the account. If the funds are not fully withdrawn within 15 years, the account must be closed and any remaining funds can be transferred to an RRSP or RRIF, tax-free. Outside of this, funds withdrawn for any other purpose or transferred to any other accounts will be taxable. 

The FHSA is a powerful tool for buyers with available funds to contribute and should be used only for the purpose of buying a first home to ensure the full benefits are realized. 

To be eligible buyers must qualify as first-time home buyers.

What is a Home Buyers Plan (HBP)?

The HBP allows buyers to withdraw funds from the RRSP to purchase or build a qualifying first home. The same as the FHSA, when you purchase an RRSP, that purchase is tax sheltered and will save you income tax in the year that you purchase them.  Unlike the FHSA, this tool is structured more like a loan with strict repayment requirements. Buyers can borrow up to $35,000 (maybe increasing to $60,000 soon) from their RRSPs to help fund their down payment with no income tax implications at that time. The repayment requirements are based on a 15-year timeline to fully replace the funds, with the first two years being excluded from repayment requirements. Each year buyers will need to repurchase (repay) 1/15th of what they borrowed from their RRSP per year otherwise that amount will be added as income in their taxes for that year. 

To be eligible to use the HBP, buyers must qualify as first-time home buyers and funds must be in the RRSP at least 90 days before the down payment is withdrawn. This option has a much longer history of use and has been well utilized by Canadians for decades. 

How to Choose Between the FHSA and the HBP

Deciding between the FHSA and HBP depends on several factors, including individual circumstances and financial goals. There is also the potential to use both options if the funds are available to do so. 

For those who have already built up a sizable RRSP and have a shorter timeline to completion, HBP offers a straightforward way to access up to $35,000 as a down payment without immediate tax implications. 

The FHSA is an option more suited to future buyers starting their savings journey or preferring to not have to repay the withdrawn amounts in the future. With the ability to carry forward unused contributions and the tax-free interest accrual, this tool is worth considering for future home buyers.

First-time home buyers in Saskatchewan should consult with a professional mortgage broker to explore the options in depth and decide on the right financial strategy for their situation. Professional advice can help ensure that the strategy aligns with the financial situation and future home buying goals. Understanding all the options for a down payment can empower future buyers to make informed, conscious decisions on their path to first-time home ownership.