What happens to my FHSA if I leave Canada? It’s a common question for Canadians planning an international move, especially for those who’ve started saving through a First Home Savings Account.
While the FHSA offers great tax advantages for homebuyers, things can get complicated if you leave the country.
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In this post, we’ll break down what happens to your FHSA when you become a non-resident, how it affects your investments and taxes, and what your options are moving forward.
How does an FHSA Work?
A First Home Savings Account (FHSA) is a registered savings plan designed for first-time home buyers.
It allows you to save money tax-free—up to annual and lifetime contribution limits—for the purpose of buying or building a qualifying first home in Canada.
You can contribute up to $8,000 per year to your FHSA, with a lifetime maximum of $40,000.
If you don’t use the full $8,000 in a given year, the unused contribution room carries over to future years, but you can only carry forward up to $8,000 at a time.
What are the benefits of FHSA?
Tax-Deductible Contributions
Contributions to your FHSA are tax-deductible, reducing your taxable income for the year.
Tax-Free Investment Growth
Any investment income earned within your FHSA such as interest, dividends, or capital gains, is not taxed, allowing your savings to grow more efficiently.
Tax-Free Withdrawals for a First Home
When you use the funds to purchase a qualifying first home, withdrawals from your FHSA are completely tax-free.
Generous Contribution Limits
You can contribute up to $8,000 annually, with a lifetime limit of $40,000.
Unused contribution room can be carried forward to future years, up to a maximum of $8,000.
Flexible Investment Options
FHSAs can hold a variety of investments, including mutual funds, ETFs, stocks, and GICs, providing flexibility in how you grow your savings.
No Repayment Requirement
Unlike the Home Buyers’ Plan (HBP), which requires repayment of withdrawn RRSP funds, FHSA withdrawals for a qualifying home purchase do not need to be repaid.
Transferability to RRSP or RRIF
You can transfer property from your FHSA to your RRSP or RRIF without triggering immediate tax consequences, provided it’s a direct transfer and you don’t have an excess FHSA amount.
Complementary to Other Savings Plans
You can use the FHSA alongside other savings plans like the RRSP and TFSA, maximizing your ability to save for a home.
Can I withdraw my FHSA anytime?
Yes, you can technically withdraw from your FHSA anytime, but how and why you withdraw affects the tax treatment:
Qualifying withdrawal from FHSA
You can withdraw funds tax-free if all of the following are true:
- You’re a first-time homebuyer
- The home is in Canada
- You have a written agreement to buy or build a home by October 1 of the year after the withdrawal
- You intend to occupy the home within one year
- The withdrawal meets all CRA conditions
FHSA non qualified withdrawal
If you don’t meet the conditions, your withdrawal will be taxed like regular income in the year you take it out, similar to withdrawing from an RRSP.
What Happens To My FHSA If I Move Out of Canada?
If you leave Canada and become a non-resident, your First Home Savings Account remains open, but the rules regarding contributions, withdrawals, and taxes change significantly.
To have a quick grasp of what will happen, let’s take a look at an example:
Annie is a Canadian resident who opens an FHSA and starts making contributions to it.
Later, she moves out of Canada and becomes a non-resident.
While Annie can no longer make tax-free contributions to her FHSA after leaving Canada, she can continue to hold the account.
However, the key benefit of making tax-free withdrawals is no longer available to her as a non-resident.
What happens to my investments if I leave Canada?
Your investments inside the FHSA can continue to grow tax-free even after you leave Canada, but with a few considerations:
- The tax-free nature of the FHSA still holds while you are a non-resident, meaning your investments (e.g., stocks, bonds, mutual funds) inside the account won’t be taxed in Canada.
- However, if you’re living in a country that taxes foreign investment income, you may be subject to taxes on the growth of your FHSA investments under the tax laws of your new country of residence.
If you move abroad and become a non-resident, you can still transfer the funds from your FHSA to an RRSP (Registered Retirement Savings Plan) or RRIF (Registered Retirement Income Fund), provided you have enough contribution room in your RRSP.
RRSP transfer: The transfer from your FHSA to your RRSP or RRIF is tax-free as long as it is a direct transfer.
Contribution room: You must have enough RRSP contribution room to accommodate the transfer. If you do not have sufficient RRSP room, you may face tax penalties or be unable to complete the transfer.
FHSA for Non-Residents: Considerations in Foreign Countries
If you leave Canada and become a non-resident, the tax treatment of your FHSA may also depend on the tax laws of your new country of residence.
- Tax implications in your new country: Some countries (such as the US) do not recognize the FHSA as a tax-deferred savings plan and may tax any income generated within the FHSA. This could mean that the growth of your investments could be taxed in your new country.
- Tax treaties: Canada has tax treaties with many countries to avoid double taxation. If your new country has a tax treaty with Canada, you may be eligible for tax exemptions or credits, but this will depend on the specific treaty terms.
It’s important to check with a tax professional in your new country of residence to understand any potential tax liabilities.
If you don’t use the FHSA funds to purchase a home, you can transfer the savings to your RRSP or RRIF without affecting your contribution room, deferring taxes until withdrawal.
Can You Still Benefit From Your FHSA Abroad?
For Canadians who have moved abroad, the First Home Savings Account can still offer some value, but there are a few factors to consider.
Whether or not you should continue contributing to your FHSA or close it entirely depends on your financial situation and long-term goals.
Scenarios Where the FHSA May Still Offer Value
- Tax-Free Growth: Your investments inside the FHSA can continue to grow tax-free under Canadian law.
This means that your stocks, bonds, or mutual funds will not be subject to Canadian taxes on any income or capital gains earned within the account while living abroad.
- Holding the FHSA for Future Use: If you plan to return to Canada and buy a first home, your FHSA can remain in place, and you can use it when you come back to the country.
Since you can carry forward unused contribution room, you might consider keeping the account active if you plan to take advantage of it in the future.
Can I transfer my FHSA or close it?
Yes. But deciding whether to close or transfer your FHSA depends on your circumstances:
Transferring to Another Canadian Account
If you’re no longer living in Canada but want to keep the account active for future use, you may be able to transfer the FHSA balance to an RRSP or RRIF without facing immediate tax consequences.
However, this is only possible if you have contribution room available in those accounts.
Closing the Account
If you do not plan to return to Canada or use the FHSA in the future, you may decide to close the account.
Be mindful that any contributions made after you become a non-resident may be subject to a penalty if they exceed the maximum allowed limit for non-residents.
Pained by financial indecision?
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