The First Home Savings Account (FHSA) offers a rare double tax benefit — contributions are tax-deductible (like an RRSP) and qualifying withdrawals are tax-free (like a TFSA). But that second benefit only applies when you use the money to buy your first home. If you withdraw for any other reason, the FHSA essentially becomes a regular RRSP withdrawal — fully taxable, with withholding at source and permanent loss of contribution room.
This page is the non-qualifying exit branch of the FHSA cluster, so read it with the main FHSA guide, the normal FHSA withdrawal rules, the property test in FHSA qualifying home purchase rules, and the long-horizon fallback page what happens to your FHSA if you never buy a home. If you still have time before buying, compare it with FHSA and RRSP HBP at the same time instead of defaulting to a taxable withdrawal.
Here is exactly what happens if you take a non-qualifying withdrawal, what alternatives exist, and how to minimize the tax hit if you have already decided not to buy a home.
Taxable withdrawal: what the CRA takes
When you request a non-qualifying FHSA withdrawal, your financial institution withholds tax before releasing the funds, just like an RRSP withdrawal.
| Withdrawal Amount | Federal Withholding Rate | Quebec Withholding (Provincial + Federal) |
|---|---|---|
| Up to $5,000 | 10% | 15% federal + 15% provincial |
| $5,001 – $15,000 | 20% | 15% federal + 15% provincial |
| Over $15,000 | 30% | 15% federal + 15% provincial |
Important: The withholding rate is not your final tax. The full withdrawal amount is added to your Line 13000 income on your tax return. If your marginal tax rate is higher than the withholding rate, you will owe the difference at tax time.
Worked example: $30,000 non-qualifying withdrawal
Suppose you contributed $8,000 per year for 4 years ($32,000 total) and your FHSA grew to $36,000. You decide not to buy a home and withdraw $30,000 as a taxable withdrawal.
| Item | Amount |
|---|---|
| Withdrawal amount | $30,000 |
| Federal withholding (30%) | $9,000 |
| Net cash received | $21,000 |
| Added to taxable income | $30,000 |
| Marginal tax rate (Ontario, ~$70K income) | ~29.65% combined |
| Actual tax owed | ~$8,895 |
| Withholding already paid | $9,000 |
| Refund at tax time | ~$105 |
In this scenario, the withholding roughly matches the actual tax. But if you are in a lower bracket, you would get a larger refund. If you are in a higher bracket (over $100K income), you would owe additional tax.
Remember: You originally received a tax deduction when you contributed ($32,000 × your marginal rate at the time). If your marginal rate was the same when you contributed and when you withdrew, the net effect is roughly a wash — similar to using an RRSP. The real loss is the tax-free growth benefit you gave up.
What you permanently lose
A non-qualifying withdrawal differs from a qualifying one in several critical ways:
| Feature | Qualifying Withdrawal (Home Purchase) | Non-Qualifying (Taxable) Withdrawal |
|---|---|---|
| Tax on withdrawal | None | Full income inclusion |
| Withholding at source | None | 10–30% depending on amount |
| Contribution room restored | N/A (account closes after purchase) | No — permanently lost |
| Can re-contribute withdrawn amount | N/A | No |
| Tax slip issued | T4FHSA (Box 22 — qualifying) | T4FHSA (Box 24 — taxable) |
The permanent loss of contribution room is the most painful consequence. Unlike a TFSA, where withdrawn amounts are added back to your room the following year, the FHSA never restores room from taxable withdrawals.
The RRSP transfer alternative (your best exit)
If you have decided not to buy a home, transferring your FHSA to an RRSP is almost always better than making a taxable withdrawal. Here is why:
- No tax on transfer. The funds move directly from FHSA to RRSP without triggering any income inclusion or withholding.
- No RRSP room used. The transfer does not count against your RRSP contribution limit. This effectively gives you bonus RRSP room.
- Funds continue to grow tax-deferred. You only pay tax when you eventually withdraw from the RRSP in retirement, ideally at a lower marginal rate.
- No deadline pressure. You can transfer at any time while the FHSA is still open.
How to transfer
- Contact your financial institution and request a direct FHSA-to-RRSP transfer (Form RC366).
- The transfer is processed institution to institution — you never receive the cash.
- The institution reports the transfer on your T4FHSA slip, but no income is included on your tax return.
Example: You contributed $40,000 (the lifetime max) over 5 years and your FHSA grew to $48,000. Rather than withdrawing and paying ~$14,000 in tax, you transfer the full $48,000 to your RRSP tax-free. You now have $48,000 in additional RRSP assets that did not use any of your regular RRSP room. When you eventually withdraw in retirement at a lower tax bracket, the tax bill is significantly smaller.
FHSA closure rules and deadlines
The FHSA has a built-in expiry. If you have not used the funds for a qualifying home purchase, the account must be closed by the earliest of:
| Event | Deadline |
|---|---|
| 15th anniversary of opening the FHSA | Account must close by Dec 31 of that year |
| Year you turn 71 | Account must close by Dec 31 of that year |
| You make a qualifying withdrawal | Account must close by Dec 31 of the following year |
If you do not close the account by the deadline, the remaining balance is treated as a taxable withdrawal. To avoid this, transfer to your RRSP before the deadline.
Decision framework: withdraw vs. transfer vs. wait
| Situation | Best Option |
|---|---|
| Might still buy within 5-10 years | Keep the FHSA open — funds continue growing tax-free |
| Definitely not buying a home | Transfer to RRSP — no tax, no room used |
| Need cash immediately | Taxable withdrawal — but consider partial transfer first |
| FHSA expiry approaching | Transfer to RRSP before Dec 31 of the deadline year |
| Low income year (parental leave, sabbatical) | If withdrawal is unavoidable, time it for a low-income year to minimize the marginal rate |
Mistakes to avoid
- Withdrawing when you could transfer. Every dollar withdrawn taxably is a dollar that could have sat in your RRSP tax-deferred for decades.
- Assuming withholding covers the tax. If your marginal rate exceeds the withholding rate, you will have a surprise tax bill in April.
- Forgetting the FHSA expiry. If the account hits its 15th anniversary and you have not transferred or withdrawn, the CRA forces a taxable withdrawal.
- Making a partial taxable withdrawal thinking room comes back. It does not. The FHSA has no room restoration mechanism for taxable withdrawals.
Related pages
- FHSA Withdrawal Rules — qualifying vs. non-qualifying withdrawal details
- FHSA Contribution Limit — annual and lifetime room
- FHSA vs TFSA vs RRSP — comparing the three accounts
- RRSP Contribution Limit Calculator — check your RRSP room
- RRSP vs TFSA — choosing the right account for your situation