FHSA vs RRSP Home Buyers' Plan: Which Is Better for You?

Canada offers two powerful tax-advantaged programs to help first-time buyers save for a down payment: the First Home Savings Account (FHSA) and the RRSP Home Buyers' Plan (HBP). Both let you save thousands in taxes, but they work differently, and understanding which one to prioritize — or how to use both together — can put an extra $15,000 to $30,000 in your pocket.

If you are planning to buy a home in Calgary within the next 5 years, this decision matters. Here is everything you need to know.

The FHSA: Canada's Newest First-Time Buyer Tool

The First Home Savings Account launched in 2023. It combines the best features of an RRSP (tax-deductible contributions) and a TFSA (tax-free withdrawals).

FHSA Key Features

Contribution limits:

• $8,000 per year
• $40,000 lifetime maximum
• Unused annual contribution room carries forward up to $8,000 (maximum $16,000 in a single year)

Tax treatment:

• Contributions are tax-deductible (like an RRSP)
• Withdrawals for a qualifying home purchase are completely tax-free (like a TFSA)
• Investment growth inside the account is tax-free

Eligibility:

• Must be a Canadian resident, 18+
• Must be a first-time home buyer (no home ownership in current year or previous 4 years)
• Must not be living in a home owned by your spouse or common-law partner

Timeline:

• Account can stay open for 15 years from opening, or until you turn 71
• If you do not use the funds for a home purchase, you can transfer them to your RRSP or TFSA tax-free, or withdraw them (taxable)

FHSA Tax Savings Example

Let's say you are in the 30% marginal tax bracket in Alberta (income around $75,000).

Year 1: Contribute $8,000 to FHSA

• Tax deduction: $8,000 × 30% = $2,400 tax refund

Year 2: Contribute $8,000 to FHSA

• Tax deduction: $2,400 tax refund

Year 3: Contribute $8,000 to FHSA

• Tax deduction: $2,400 tax refund

Year 4: Contribute $8,000 to FHSA

• Tax deduction: $2,400 tax refund

Year 5: Contribute $8,000 to FHSA (total contributions now $40,000)

• Tax deduction: $2,400 tax refund

Total tax savings from contributions: $12,000

When you buy your home, you withdraw the full $40,000+ (including investment growth) completely tax-free. No taxes owed, no repayment required.

This is the most powerful first-time buyer savings tool Canada has ever offered.

The RRSP Home Buyers' Plan: The Established Option

The Home Buyers' Plan has existed since 1992. It lets you withdraw up to $60,000 from your RRSP to use toward a home purchase, tax-free, with the requirement to repay it over 15 years.

HBP Key Features

Withdrawal limit:

• $60,000 per person
• $120,000 per couple (if both are first-time buyers)

Eligibility:

• Must be a first-time home buyer (no home ownership in current year or previous 4 years)
• Funds must be in your RRSP for at least 90 days before withdrawal
• Must have a written agreement to buy or build a qualifying home
• Must occupy the home as your principal residence within 1 year of purchase

Repayment requirement:

• You must repay the withdrawn amount over 15 years
• Repayment starts the second year after your withdrawal
• Minimum annual repayment: 1/15th of the amount withdrawn
• If you miss a repayment, that year's amount is added to your taxable income

Tax treatment:

• RRSP contributions are tax-deductible when you make them
• HBP withdrawal is tax-free
• Repayments are not tax-deductible (you are just putting the money back)

HBP Tax Savings Example

Using the same 30% marginal tax bracket:

Scenario: You contribute $60,000 to your RRSP over 5 years ($12,000/year).

Tax savings from contributions:

• Year 1: $12,000 × 30% = $3,600 refund
• Year 2: $12,000 × 30% = $3,600 refund
• Year 3: $12,000 × 30% = $3,600 refund
• Year 4: $12,000 × 30% = $3,600 refund
• Year 5: $12,000 × 30% = $3,600 refund
• Total tax savings: $18,000

You then withdraw $60,000 tax-free for your home purchase.

But: You must repay $4,000/year for 15 years back into your RRSP. Those repayments are not tax-deductible.

FHSA vs RRSP HBP: Direct Comparison

The FHSA advantage: No repayment required. The $40,000 is yours to keep.

The HBP advantage: Higher maximum ($60,000 vs $40,000), and if you are a high earner, you can contribute more than $8,000/year.

Can You Use Both? Yes — And You Should

Here is the strategy that maximizes your down payment savings:

The Combined Strategy

Step 1: Open an FHSA immediately (even a $1 deposit starts your timeline).

Step 2: Contribute $8,000/year to your FHSA for 5 years = $40,000.

Step 3: Simultaneously contribute to your RRSP. Aim for $60,000 over 5 years ($12,000/year if you can afford it).

Step 4: When you buy your home:

• Withdraw $40,000 from FHSA (tax-free, no repayment)
• Withdraw $60,000 from RRSP via HBP (tax-free, must repay over 15 years)
• Total down payment: $100,000

If you are buying with a partner who is also a first-time buyer:

• Your FHSA: $40,000
• Partner's FHSA: $40,000
• Your RRSP HBP: $60,000
• Partner's RRSP HBP: $60,000
• Combined down payment: $200,000

This is how strategic first-time buyers in Calgary are putting together 20%+ down payments and avoiding mortgage default insurance.

Which Should You Prioritize If You Can't Max Both?

If you can only contribute to one account, which should you choose?

Prioritize FHSA If:

You are 5+ years away from buying

• The FHSA has 15 years to stay open, so you have time to maximize it

You want simplicity

• No repayment requirement means less complexity

You are in a lower tax bracket now but expect higher income later

• Get the tax deduction now, and the tax-free withdrawal later is even more valuable if you are in a higher bracket at that point

You value flexibility

• If you decide not to buy a home, you can transfer FHSA funds to your RRSP or TFSA with no tax hit

Prioritize RRSP HBP If:

You need more than $40,000

• HBP allows $60,000 vs FHSA's $40,000

You are 1-2 years away from buying

• You do not have time to max out the FHSA ($8,000/year limit), but you can dump $20,000+ into an RRSP in a single year if your contribution room allows

You are a high earner with RRSP contribution room

• If you earn $150,000+, you can contribute $27,000/year to your RRSP (18% of income). This lets you build $60,000 faster than the FHSA's $8,000/year limit.

You want to reduce taxable income aggressively

• Large RRSP contributions in a single year can drop you into a lower tax bracket and increase benefits like Canada Child Benefit

The Balanced Approach (Recommended for Most People)

Contribute $8,000/year to FHSA (maximizing this first because no repayment required)

Then contribute any additional savings to RRSP (building toward the $60,000 HBP limit)

This gives you the best of both: FHSA's no-repayment benefit, plus RRSP's higher limit.

Investment Strategy Inside FHSA and RRSP

Both accounts are just containers. What you invest inside them determines your growth.

Conservative Timeline (1-2 Years to Purchase)

Recommended: High-interest savings account (HISA) or GICs inside the FHSA/RRSP

• Current rates: 4.5% to 5.0%
• No risk of loss
• Guaranteed growth

Why conservative? If you are buying in 18 months and the stock market drops 15%, you lose a chunk of your down payment. Not worth the risk.

Moderate Timeline (3-5 Years to Purchase)

Recommended: Balanced portfolio (60% stocks, 40% bonds) inside the FHSA/RRSP

• Historical average return: 6% to 7%
• Moderate risk
• Time to recover from short-term volatility

Example funds:

• Vanguard Balanced ETF (VBAL)
• iShares Core Balanced ETF (XBAL)
• TD Balanced Index Fund

Aggressive Timeline (5+ Years to Purchase)

Recommended: Growth portfolio (80% to 100% stocks) inside the FHSA/RRSP

• Historical average return: 8% to 10%
• Higher risk
• Sufficient time to ride out market downturns

Example funds:

• Vanguard All-Equity ETF (VEQT)
• iShares Core Equity ETF (XEQT)
• S&P 500 Index Fund

Important: Whatever you invest in, keep it simple. Low-cost index funds or ETFs outperform actively managed funds over time, and they are easier to manage.

Common Mistakes to Avoid

Mistake 1: Not Opening an FHSA Immediately

Even if you cannot contribute the full $8,000 right away, open the account with $1. This starts your contribution room clock and your 15-year eligibility window.

Example: You open an FHSA in January 2025 with $1. You do not contribute again until December 2025 when you deposit $8,000. You now have $16,000 of contribution room available in 2026 ($8,000 from 2025 that carried forward + $8,000 for 2026).

Mistake 2: Forgetting the 90-Day RRSP Rule for HBP

RRSP funds must be in your account for 90 days before you can withdraw them under the HBP. If you deposit $60,000 into your RRSP on March 1 and try to withdraw it on March 15 for a home purchase, you will pay full taxes on the withdrawal.

Fix: Contribute to your RRSP at least 90 days before you plan to use HBP.

Mistake 3: Missing HBP Repayments

If you withdraw $60,000 via HBP, you must repay $4,000/year starting the second year after withdrawal. If you miss a repayment, that $4,000 is added to your taxable income.

Example: You are in the 30% tax bracket and miss your $4,000 repayment. You now owe $1,200 in additional taxes.

Fix: Set up automatic annual RRSP contributions to cover your HBP repayment.

Mistake 4: Using FHSA for Non-Housing Purchases

If you withdraw FHSA funds for anything other than a qualifying home purchase, the withdrawal is fully taxable (just like RRSP withdrawals).

The exception: If you transfer unused FHSA funds to your RRSP or TFSA, there is no tax consequence.

Real Calgary Example: FHSA + HBP in Action

Profile:

• Sarah, 28 years old, nurse, income $85,000/year
• Started saving in 2023, planning to buy in 2028
• Marginal tax rate: 30.5% (Alberta)

Savings plan:

2023:

• FHSA contribution: $8,000 (tax refund: $2,440)
• RRSP contribution: $10,000 (tax refund: $3,050)

2024:

• FHSA contribution: $8,000 (tax refund: $2,440)
• RRSP contribution: $10,000 (tax refund: $3,050)

2025:

• FHSA contribution: $8,000 (tax refund: $2,440)
• RRSP contribution: $10,000 (tax refund: $3,050)

2026:

• FHSA contribution: $8,000 (tax refund: $2,440)
• RRSP contribution: $10,000 (tax refund: $3,050)

2027:

• FHSA contribution: $8,000 (tax refund: $2,440)
• RRSP contribution: $10,000 (tax refund: $3,050)

Total contributions: $40,000 FHSA + $50,000 RRSP = $90,000 Total tax refunds received: $12,200 + $15,250 = $27,450

2028 (purchase year):

• FHSA balance (with 5% growth): $44,200
• RRSP balance (with 5% growth): $55,250
• Withdraw both tax-free for down payment: $99,450

On a $500,000 Calgary home, this is nearly 20% down. No mortgage default insurance, better rates, lower payments.

FAQ: FHSA and RRSP HBP

Q: Can I use the HBP if I have used it before? A: Yes, if you repaid the previous HBP withdrawal in full and meet the first-time buyer eligibility (no home ownership in current year or previous 4 years).

Q: What happens to my FHSA if I don't buy a home? A: You can transfer the funds tax-free to your RRSP or TFSA, or withdraw them (taxable) before the account must close (15 years from opening or age 71).

Q: Can I open multiple FHSAs? A: Yes, but your total contributions across all FHSAs cannot exceed $8,000/year or $40,000 lifetime.

Q: Do I have to buy in Canada to use FHSA or HBP? A: Yes, both programs require the home to be located in Canada.

Final Thoughts

The FHSA is the better program for most first-time buyers because there is no repayment requirement. But the RRSP HBP allows you to access more funds ($60,000 vs $40,000), making the optimal strategy a combination of both.

If you are serious about buying a home in Calgary within the next 5 years, open an FHSA today. Even if you can only contribute $100/month to start, you are building tax-free savings and getting valuable tax deductions.

Calgary's real estate market is strong, prices are rising, and down payment requirements are real. Using every available tax advantage — FHSA, HBP, and smart investing — puts you in the strongest possible position when you are ready to buy.

For more first-time buyer strategies, see the First-Time Home Buyer Guide: Calgary 2025.

Questions about FHSA, HBP, or down payment strategies? Contact Jay: jaysinghmortgage@gmail.com or 403.409.1126.