FHSA Transfers

The last couple of weeks, we’ve been featuring the details of a brand new account – the First Home Savings Account (FHSA). This week we’re focusing on transfer opportunities with the FHSA, which is especially relevant to those working with millennial clients looking to buy their first homes. What order should the FHSA, TFSA and RRSP be funded as part of a strategic savings plan? For some the choice will be evident, for others this is a great leveraging opportunity and as an advisor, this is an opportunity to be prepared with the answers.

Can FHSA contributions be transferred to an RRSP or RRIF?  Yes, that’s possible if the funds are not used to purchase a home or if there are excess funds in the plan once the home is purchased. That transfer needs to be made by December 31 of the year following the withdrawal.  The transfer will not affect the available RRSP contribution room but does not increase it for the purposes of making a new RRSP deduction. 

From a planning perspective, though, it becomes possible to shelter up to $40,000 more in the RRSP -  room a taxpayer may otherwise not have had, so long as the taxpayer qualifies to open and make contributions to a FHSA.  A good example is a business owner whose compensation is from dividends only or those who otherwise do not have the qualifying earned income required for an RRSP.  It’s also possible to transfer unused amounts to a RRIF for a tax benefit from the continued tax deferral.  This money will, however, be taxable eventually; hence, it’s better to use the money tax-free to buy the qualifying home.    It’s important to make the transfer to these funds before the FHSA loses its tax-preferred status.

However, if you are currently a renter, opening a FHSA has several big benefits: the opportunity to make tax-deductible, tax-deferred contributions for a potential purchase of the home in the future, and no immediate downside if you don’t buy a home:  you can transfer the funds to an RRSP or RRIF later.

Note that unlike a TFSA, withdrawals or transfers from a FHSA will not restore FHSA room.

Can FHSA contributions be transferred to a TFSA?  No. It’s not possible to transfer directly from a FHSA to a TFSA.  If you want to move FHSA funds to your TFSA, you’ll have to make a taxable withdrawal and then make a TFSA contribution.  The withdrawal amount will be included in your income, and the TFSA contribution will be limited to your available TFSA contribution room.