Canada FHSA vs. RRSP: A Tax Comparison
Choosing between a First-Home Savings Account (FHSA) and a Registered Retirement Savings Plan (RRSP) for your savings in Canada can be confusing, as both offer tax advantages. This article will compare and contrast these two popular savings vehicles, emphasizing their key differences.
Canada First-Home Savings Account (FHSA)
The FHSA is a relatively new registered savings plan designed specifically to help Canadians save for their first home. Both contributions and investment growth are tax-sheltered until withdrawal for a qualifying home purchase. The government also offers a first-time home buyers' tax credit on contributions. There are contribution limits, currently set at $8,000 per year, to a lifetime maximum of $40,000 (as of 2024). You can only withdraw from your FHSA for the purchase of a qualifying home, or under specific extenuating circumstances. Learn more about FHSA rules and regulations on the Government of Canada website.
The Canadian Governement states the following with regards to FHSA contributions:
## Registered Retirement Savings Plan (RRSP) The RRSP is a long-standing registered plan aimed at retirement savings. Investment growth within the RRSP is also tax-sheltered. However, withdrawals in retirement are taxed as income. Contribution limits are based on a percentage of your previous year’s earned income. Consult the Canada Revenue Agency website for the most up-to-date RRSP contribution limits. Unlike an FHSA, you can withdraw from your RRSP for various reasons, but this often incurs penalties and will be taxed as income. ### Comparison Table: FHSA vs. RRSPContributions that you make to your first home savings accounts (FHSAs) are generally deductible on your income tax and benefit return for the year of the contribution or a future year, similar to registered retirement savings plan (RRSP) contributions. It is important to note that transfers from your RRSPs to your FHSAs are not deductible.
| Feature | FHSA | RRSP |
|---|---|---|
| Purpose | First-home purchase | Retirement savings |
| Tax Deductibility | Yes (contributions) | Yes (contributions) |
| Tax on Growth | Tax-sheltered | Tax-sheltered |
| Tax on Withdrawal | Tax-free (for qualified home purchase) | Taxed as income |
| Withdrawal Restrictions | Yes, primarily for home purchase | Less restrictive, but penalties may apply |
| Contribution Limits | $8,000 annually, $40,000 lifetime (as of 2024) | Based on earned income (check CRA website for details) |
| Government Incentives | Home Buyers' Tax Credit | No direct equivalent credit on contributions |
