To make a tax-free withdrawal (also called a “qualifying withdrawal A qualifying withdrawal from an FHSA means you're making a withdrawal for the purpose of buying a home.”) from your First Home Savings Account (FHSA), you must meet the following conditions:
- Your new home must be your main residence within one year after buying or building it. You’ll have to complete the documentation indicating the location of the qualifying home and your intention to live there as your principal residence within one year of purchase.
- You must be a first-time home buyer when you make a withdrawal or within 30 days of moving into a qualifying home. To make a qualifying withdrawal, you can’t have owned and occupied a home in the preceding four calendar years. Also, you can’t have owned and occupied a home in the current year for more than 30 days prior to the withdrawal.
- You’ll need a written agreement to buy or build a qualifying home before Oct. 1 of the year following the year of the withdrawal. This is provided the qualifying home wasn’t bought more than 30 days before the withdrawal.
If you meet the government’s conditions, you can withdraw as much as you’d like from your FHSA on a tax-free basis – either as a single withdrawal or a series of withdrawals . It’s also important to note that you must close your account by the end of the year following the year your first qualifying withdrawal is made. This means that you’ll have to make all your withdrawals within that time period.
For example, if you made your first withdrawal in 2023, then you’ll have to make all your withdrawals and close your FHSA by 2024. However, this isn’t the only factor that can affect you when you have to make withdrawals. Connect with an advisor to discuss your unique situation.
If you can’t meet these conditions, then you can still make “non-qualifying” withdrawals from your FHSA. These are withdrawals that are subject to a withholding tax. They’ll also be included in your taxable income in the year of the withdrawal.
Will my annual FHSA limit reinstate after a withdrawal?
No. Unlike a TFSA, withdrawals from an FHSA don’t reinstate contribution or deduction room the following year.
Can I withdraw the funds if I don’t purchase a qualifying home?
Yes. However, it wouldn’t be a tax-free qualifying withdrawal. You would include the withdrawal in your income and pay tax at your marginal tax rate. Or, you can transfer unused amounts to your Registered Retirement Savings Plan (RRSP) / Registered Retirement Income Fund (RRIF) on a tax-deferred basis.
