What are the most common mistakes with FHSAs, and how do you avoid them?

By FastBuySale Newsroom · 5 Nov 2026 · 21m ago

Mistake 1: opening too late, or assuming you qualify

Common mistakes with FHSAs and how to avoid them starts with one rule: the Canada Revenue Agency (CRA) says your FHSA participation room in the first year you open an FHSA is $8,000, and that room covers your contributions and your transfers from RRSPs combined, across every FHSA you hold. Go over it and you pay a tax of 1% per month on the highest excess amount in each month the excess remains.

A first home savings account is a registered plan that lets a first-time home buyer save to buy or build a qualifying first home tax-free, up to certain limits. Contributions are generally deductible, like RRSP contributions, and a qualifying withdrawal to buy a home is not taxed and does not need to be repaid. Over your lifetime, the most you can deduct as an FHSA deduction is $40,000.

Waiting to open the account. Participation room only starts building once you open your first FHSA. The CRA's example: Julianne opened an FHSA in April 2026, so her room for 2026 was $8,000 because it was her first FHSA year. If you think you may buy a home in the next few years, opening the account early starts the clock on room, even if you do not contribute straight away.

Not checking eligibility. To open an FHSA you must be a resident of Canada, be at least 18 (19 in provinces and territories where that is the legal age to enter a contract), be 71 or younger as of December 31 of the year you open it, and be a first-time home buyer. For opening purposes, that means you did not live in a home you owned or jointly owned as your principal residence in the current calendar year or the previous 4 calendar years. The same test applies to a home owned by your spouse or common-law partner, if you have one.

Forgetting the clock it starts. Opening also starts your maximum participation period. The CRA says it ends on December 31 of the year of the earliest of: the 15th anniversary of opening your first FHSA, the year you turn 71, or the year following your first qualifying withdrawal. In the CRA's example, Amr opened his first FHSA in August 2025 but did not contribute until 2028, and his period still ends on December 31, 2040, because the clock started when the account opened.

Fix: confirm the age, residency and first-time buyer tests before you apply, note your end date in your calendar the day you open the account, and read our for how an FHSA fits next to a TFSA.

Mistake 2: over-contributing and the 1% monthly tax

Counting each FHSA separately. The CRA is explicit that participation room applies to all of your FHSAs combined. In its example, Nayeon opened FHSAs with two banks in 2026; her total across both still could not exceed $8,000.

Adding RRSP transfers on top. Julianne, in the CRA example, thought she could contribute $8,000 and also transfer $8,000 from her RRSPs. She could not: transfers plus contributions together were capped at $8,000. She transferred $7,500 and contributed $500, exactly $8,000.

Ignoring the penalty. In the CRA's example, Ridwan transferred $7,500 and contributed $2,000 on the same day in 2025, for $9,500 against $8,000 of room, creating an excess FHSA amount of $1,500. The tax is 1% on the highest excess amount in each month it remains. He fixed it with a designated withdrawal of $1,500, which eliminated the excess. Another CRA example shows a $5,000 excess from $13,000 of contributions in 2026; the excess also reduced that person's room for the following year.

Using a home withdrawal to clear an excess. A qualifying withdrawal does not reduce or eliminate an excess FHSA amount. The CRA warns that if you make a qualifying withdrawal that includes an excess, you may still owe the 1% tax for each month the excess remains, potentially indefinitely.

Fix: before every deposit, check your room on your CRA account (Savings and pension plans tab, View FHSA details) or your notice of assessment, add up deposits at every institution, and if you overshoot, request a designated withdrawal or designated transfer quickly. Project how your savings could grow with the

Mistake 3: botching the deduction and the paperwork

Confusing transfers with contributions. Contributions are generally deductible; transfers from your RRSPs to your FHSAs are not deductible, and they reduce the amount you can deduct over your lifetime.

Thinking you must deduct this year. The CRA says FHSA contributions may be deducted in the year of the contribution or a future year. There is no minimum number of days a contribution must stay in the account before you can deduct it. If you expect a higher income later, carrying the deduction forward may be worth more; estimate your take-home pay with the

Skipping Schedule 15. You must fill out Schedule 15, FHSA Contributions, Transfers and Activities, when you file your return for the year you open your first FHSA, even if you did not contribute or transfer anything that year. Without it, your FHSA participation room statement may not be accurate.

Not filing at all. The CRA says you should file all your income tax and benefit returns, even in a year with no income, to keep its records up to date. Your FHSA issuer also sends a T4FHSA slip showing your account activity.

Mistake 4: withdrawals and closing the account

Missing a qualifying withdrawal condition. For a tax-free qualifying withdrawal you must be a first-time home buyer at the time of withdrawal (no owner-occupied principal residence in the current year before the withdrawal, except the 30 days just before it, or the previous 4 calendar years); have a written agreement to buy or build a qualifying home with a completion date before October 1 of the year after the withdrawal; not have acquired the home more than 30 days before the withdrawal; remain a resident of Canada until you acquire the home; intend to occupy it as your principal residence within one year after buying or building it; and give your issuer Form RC725. Miss one and the withdrawal may be taxable.

Buying outside Canada. A qualifying home is a housing unit located in Canada, such as a single-family home, semi-detached home, townhouse, mobile home, condo unit, or apartment in a duplex, triplex, fourplex or apartment building. A co-op share that only gives you a right to tenancy does not qualify.

Forgetting the Home Buyers' Plan. The CRA says you can withdraw from your RRSPs under the Home Buyers' Plan (HBP) and make a qualifying FHSA withdrawal for the same home, as long as you meet the conditions of each at the time. Couples buying together can each make a qualifying withdrawal from their own FHSA. Model the mortgage you will need with the

Leaving money in past the deadline. If property is still in your FHSAs after your maximum participation period ends, the accounts lose their FHSA status and the fair market value at December 31 is included in your income. Before then, you can transfer the property to your RRSP or RRIF on a tax-deferred basis (Form RC721) or take a taxable withdrawal. In the CRA example, Amr moved $15,000 to his RRSP before December 31, 2040 and reported nothing.

Fix: keep a one-page checklist of the qualifying withdrawal conditions, get the written purchase agreement before you submit RC725, and set a reminder a year before your period ends. Compare the RRSP route in our

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