What a first home savings account does and who can open one

A first home savings account is a tax-sheltered savings vehicle designed specifically to help you accumulate money for a down payment, closing costs, or other expenses tied to buying your first home. The main benefit is that contributions reduce your taxable income for the year you make them, and the money grows tax-free inside the account. When you withdraw funds to buy your first home, those withdrawals are not taxed.

You can open one if you are a Canadian resident for tax purposes, at least 18 years old, and have never owned a principal residence in Canada. Some accounts also require that you have not owned a home in the four years before you open the account. The account is offered by banks, credit unions, investment firms, and insurance companies — not by the government directly.

The contribution limit is $8,000 per year, up to a lifetime maximum of $40,000. You can contribute to your own account and your spouse can contribute to theirs separately, which means a couple can save up to $80,000 combined over five years.

Key Takeaways

  • You open a first home savings account at a bank, credit union, or investment firm, not through a government office.
  • You can contribute up to $8,000 per year and deduct that amount from your taxable income on your tax return.
  • Money inside the account grows tax-free, and withdrawals for a first home purchase are not taxed.
  • You must be a first-time home buyer and a Canadian resident for tax purposes to open one.
  • Your spouse can open their own account and contribute separately, allowing a household to save up to $80,000 over five years.

Where to open a first home savings account

You can open an account at any financial institution that offers them. The major banks (Royal Bank, TD, Bank of Nova Scotia, Bank of Montreal, CIBC) all offer them, as do most credit unions and online banks. Investment firms and insurance companies also provide them.

Call or visit the branch in person, or go to the institution's website to start online. You will need to provide your Social Insurance Number, proof of identity, and proof of address. Some institutions let you open the account entirely online; others require you to come in or mail documents. Ask whether the institution charges an annual fee — some do, some do not.

Shop around before you choose. Different institutions offer different investment options inside the account (savings accounts, GICs, mutual funds, stocks, or a mix), different interest rates or returns, and different fee structures. An account at a credit union may have lower fees than one at a large bank, or vice versa depending on your location and the institution.

How to contribute and claim the deduction on your tax return

Once your account is open, you can contribute money whenever you want, up to $8,000 in a calendar year. You do not have to contribute the full $8,000 every year — you can contribute $3,000 one year and $5,000 the next, or skip a year entirely. Any unused contribution room carries forward, so if you contribute only $5,000 in year one, you have $3,000 of unused room plus the $8,000 for year two, giving you $11,000 of room in year two.

To claim the deduction on your tax return, you will need a receipt or statement from your financial institution showing how much you contributed in that tax year. When you file your return (either on your own or with a tax preparer), you report the contribution amount on the line for first home savings account deductions. The deduction reduces your taxable income for that year, which usually means a refund or a smaller amount owing.

Keep records of all contributions and withdrawals. Your financial institution will also report your account activity to the Canada Revenue Agency, so the CRA will know if you contribute more than the annual limit or if you withdraw money.

What counts as a first home purchase and how to withdraw

A first home is a principal residence you own alone or jointly with someone else. It can be a house, condo, townhouse, mobile home, or apartment in a co-op. It must be located in Canada. You cannot use the money to buy a cottage, rental property, or investment property.

To withdraw money for your first home purchase, you must have a written agreement to purchase the home (an offer to purchase or purchase agreement signed by you and the seller). Contact your financial institution and provide a copy of the agreement. The institution will verify that you meet the conditions and process the withdrawal. You can withdraw all the money in your account at once, or withdraw it in stages if your purchase timeline spans multiple months.

Once you withdraw money for a first home purchase, you can no longer contribute to that account. The account closes after you have withdrawn all the funds or after the calendar year in which you turn 71, whichever comes first.

What happens if you do not buy a home or if circumstances change

If you do not purchase a first home within a certain timeframe, you can leave the money in the account and keep contributing until you do buy. There is no deadline to use the money — you can keep saving for as long as you want, as long as you remain a first-time buyer.

If you buy a home and then sell it later, you can open a new first home savings account only if you have not owned a principal residence in the four years before you open the new account. Once you have owned a principal residence, you are no longer a first-time buyer and cannot open a new account.

If you withdraw money from the account for any reason other than a first home purchase, that withdrawal is added back to your taxable income for the year you withdraw it. For example, if you withdraw $5,000 to pay for something else, you must report that $5,000 as income on your tax return. You also lose the deduction you claimed for that contribution in the year you made it.

Investment options and how your money grows inside the account

The type of investment available depends on the institution. Some offer only high-interest savings accounts, where your money earns a set interest rate. Others offer GICs (may provide investment certificates), which lock your money in for a set term at a fixed rate. Many offer mutual funds, ETFs, or individual stocks, which can grow faster but carry more risk.

The money inside the account grows tax-free, meaning you do not pay tax on interest, dividends, or capital gains while the money is in the account. This is different from a regular savings account, where you pay tax on interest earned each year. Over time, tax-free growth can add up significantly, especially if you are saving for five or more years.

Choose an investment option based on how long you plan to save and how comfortable you are with risk. If you plan to buy a home in two years, a GIC or high-interest savings account is safer because the value will not fluctuate. If you plan to save for five or more years, a balanced mix of mutual funds or stocks may grow faster, but the value will go up and down in the short term.

Frequently Asked Questions

Can my spouse and I both open first home savings accounts?

Yes. Each of you can open a separate account and contribute up to $8,000 per year. You each claim your own deduction on your own tax return. This allows a couple to save up to $16,000 per year, or $80,000 over five years, all with tax-free growth.

What if I contributed to the account but then decided not to buy a home?

You can leave the money in the account indefinitely and keep contributing. There is no deadline to use it. If you eventually do buy a first home, you can withdraw it tax-free. If you withdraw it for any other reason, you must report the withdrawal as income on your tax return.

Do I have to use the money in the account for the down payment, or can I use it for closing costs?

You can use it for any expense related to buying the home, including the down payment, legal fees, home inspection, appraisal, title insurance, and property taxes. The only requirement is that you have a signed purchase agreement and that the home is your first principal residence in Canada.

What if I open an account but then buy a home before I contribute any money?

You can still withdraw from the account even if you have not contributed yet, but there will be nothing to withdraw. Once you have purchased a principal residence, you can no longer contribute to a first home savings account or open a new one, even if you never used it.

Can I transfer money from an RRSP or TFSA into a first home savings account?

No. You cannot transfer money directly from another account type. You must withdraw the money from your RRSP or TFSA first (which may trigger tax), and then deposit it into the first home savings account as a new contribution. The contribution counts toward your annual $8,000 limit.