A Simple Guide to Using a First Home Savings Account

For many young Canadians, saving enough for a first home can feel overwhelming. Rising living costs, rent and other financial priorities can make it difficult to build a down payment.

Parents and grandparents often want to help, but they may not be sure where to begin.

One useful option to consider is the First Home Savings Account, commonly called an FHSA.

What Is an FHSA?

An FHSA is a registered account designed to help an eligible first-time home buyer save for a qualifying home.

It combines two attractive tax features:

• Contributions are generally tax-deductible. This means the account holder may be able to use the contribution to reduce taxable income.
• A qualifying withdrawal can be made tax-free. The money, including eligible investment growth, may be withdrawn without tax when used to buy or build a qualifying first home.

FHSA participation room is $8,000 in the first year an FHSA is opened. The account must be opened before FHSA participation room begins accumulating.

Put simply, an FHSA can provide a tax benefit while your child saves and another tax benefit when the money is used appropriately for a first home.

Can Parents Contribute to a Child's FHSA?

The FHSA must be opened and owned by the eligible child. A parent cannot open an FHSA in the parent's name for the child's future home.

However, a parent or grandparent may give the child money that the child can contribute to their own FHSA.

The contribution is treated as the child's contribution, so:

• The contribution uses the child's available FHSA participation room.
• The potential income-tax deduction belongs to the child.
• The child owns and controls the account.
• The child must satisfy the eligibility and qualifying-withdrawal conditions.

This makes the FHSA different from simply setting aside money in a parent's investment account. Once gifted and contributed, the money belongs to the child.

Why Opening the Account Early Can Matter

FHSA participation room begins after an eligible person opens their first FHSA. Opening an account may therefore be worth considering even if the initial contribution is modest.

For example, a young adult may open an FHSA and contribute only what is affordable today. Parents could then help with future contributions as part of a longer-term family plan.

Starting earlier may also give invested savings more time to grow, although investment values can rise or fall depending on what is held in the account.

A Simple Family Example

Imagine that Maya is eligible to open an FHSA but is finding it difficult to save while paying rent. Her parents want to help.

Instead of waiting until Maya is ready to make an offer on a home, they give her money to contribute to her FHSA.

Maya contributes the money within her available participation room. She may be able to claim the deduction when it is useful to her, and the funds can be invested based on her goals, timeframe and comfort with risk.

When Maya is ready to purchase a qualifying first home, she can apply to make a qualifying withdrawal. If all requirements are satisfied, the withdrawal can be received tax-free.

The result is a structured way for the family to help Maya prepare for homeownership, rather than providing the entire gift at the last minute.

Cash or Investments?

An FHSA can hold permitted investments, not just cash. The appropriate choice depends heavily on when the child expects to buy.

A child who hopes to purchase relatively soon may place greater importance on preserving the down payment. Someone with a longer timeline may be comfortable considering investments with more growth potential and more short-term fluctuation.

The key question is not simply:

“What could earn the highest return?”

A more useful question may be:

“When might this money be needed, and how much uncertainty can the future buyer reasonably accept?”

Five Practical Ways Parents Can Help

1. Encourage the Child to Check Eligibility

Before contributing, the child should confirm that they meet the FHSA opening requirements and understand how the first-time home buyer rules apply to their circumstances.

2. Help Them Open the Account

A conversation about the FHSA can be valuable even if the child is not yet ready to make a large contribution.

The account must be opened before participation room begins accumulating.

3. Coordinate Gifts With Available Room

Before providing money, confirm how much FHSA participation room the child has available.

Contributing too much can create tax complications.

4. Match the Investments to the Home-Buying Timeline

Money intended for a near-term purchase generally requires a different approach from money that may remain invested for many years.

5. Keep the Child Involved

The FHSA is the child's account and should support the child's own goals.

Discuss the likely purchase timeframe, target down payment, preferred location and ongoing costs of homeownership.

What If the Child Does Not Buy a Home?

Life plans change. A child may decide to keep renting, move to another country or delay buying longer than expected.

Specific rules apply when closing an FHSA or transferring money out of an FHSA. Families should review those rules before making decisions because the tax treatment depends on how the funds leave the account.

This flexibility is helpful, but it does not mean every withdrawal is tax-free. The tax-free treatment is tied to meeting the conditions for a qualifying withdrawal.

Avoid These Common Misunderstandings

“I can claim the deduction because I provided the money.”

No. The FHSA holder makes the contribution and is generally the person entitled to the deduction.

“My child automatically receives $8,000 of room every year from age 18.”

No. FHSA participation room starts when an eligible person opens their first FHSA, not simply when they reach a certain age.

“The account guarantees enough money for a down payment.”

No. The result depends on contributions, time, investment performance and future housing costs.

“Any withdrawal is tax-free.”

No. The withdrawal must meet the applicable qualifying-withdrawal conditions.

The Bigger Planning Opportunity

Helping a child with an FHSA can become part of a broader family conversation about:

• Setting a realistic home-buying budget
• Building an emergency fund
• Managing debt
• Understanding mortgage and closing costs
• Selecting an appropriate investment approach
• Balancing support for children with the parents' own retirement security

The goal should not be to help a child buy at any cost. It should be to help them prepare for homeownership without putting either generation under unnecessary financial pressure.

Final Thoughts

An FHSA can be a practical way to turn a parent's desire to help into a structured savings plan.

The most important first step is often a simple conversation:

“Is buying a home one of your child's goals, and could opening an FHSA help them move toward it?”

Every family's tax situation, investment timeframe and home-buying plan is different. Before contributing or withdrawing, consider speaking with qualified tax, legal and financial professionals.

Disclaimer

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (CAMI); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (WMI). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (ISI), CIBC Global Asset Management and credit products. CIBC Private Wealth services are available to qualified individuals. The CIBC logo, “CIBC Private Wealth”, “CIBC Private Banking” and “CIBC Global Asset Management” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.

Robert Van Alphen is an Investment Advisor with CIBC Wood Gundy in Penticton. The views of Robert Van Alphen do not necessarily reflect those of CIBC World Markets Inc.

If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.

This commentary is intended to provide general information and should not be construed as legal, investment, tax or other advice. Individual circumstances and current events are critical to sound planning; anyone wishing to act on the information presented should consult with his or her legal, financial, or tax advisor.