FHSA Withdrawal Rules in Canada (2026 Guide): Tax-Free vs Taxable Withdrawals Explained

Introduction

Searching for FHSA withdrawal rules because you’re about to take money out?

Here’s the direct answer: Yes, you can withdraw from your FHSA tax-free — but only if you meet the qualifying home purchase conditions. If you don’t, the withdrawal becomes taxable income.

The First Home Savings Account (FHSA) is a Canadian registered plan designed to help first-time home buyers save for a home with powerful tax advantages. But those benefits only apply when the withdrawal rules are followed correctly.

This guide is for first-time home buyers in Canada who want clear answers before making a withdrawal — including when it’s tax-free, when it’s taxable, and what conditions must be met.

What Is an FHSA and Why Do Withdrawal Rules Matter?

The First Home Savings Account (FHSA) is a registered Canadian savings plan designed to help first-time home buyers save for a qualifying home purchase. Contributions are tax-deductible (like an RRSP), and qualifying withdrawals are tax-free (like a TFSA).

Understanding FHSA withdrawal rules is critical because the tax advantages depend entirely on meeting specific conditions. If you follow the rules, your withdrawal for a qualifying home purchase can be completely tax-free. If you don’t, the amount withdrawn is added to your taxable income for the year.

In simple terms:

• Qualifying withdrawal = tax-free
• Non-qualifying withdrawal = taxable income

That’s why knowing the rules before withdrawing funds can protect your savings and prevent unexpected tax consequences.

What Qualifies as a Tax-Free FHSA Withdrawal?

Not every withdrawal from your FHSA is tax-free. To qualify for a tax-free withdrawal under FHSA withdrawal rules, you must meet all of the following conditions.

First-Time Home Buyer Requirement

You must be considered a first-time home buyer at the time of withdrawal. Generally, this means you have not owned and lived in a home that you or your spouse/common-law partner owned in the current year or in the previous four calendar years.

If you owned a home recently, you may not qualify for a tax-free withdrawal.

Written Agreement to Buy or Build a Home

You must have a written agreement to buy or build a qualifying home in Canada before making the withdrawal. The property must be located in Canada and intended as your principal residence.

Without a signed agreement, the withdrawal will not qualify as tax-free.

Canadian Residency Requirement

You must be a resident of Canada at the time of the withdrawal. Non-residents do not qualify for tax-free FHSA withdrawals.

Residency status matters at the time you request the withdrawal.

Principal Residence Occupancy Rule

You must intend to occupy the home as your principal residence within one year of buying or building it.

The FHSA is designed to help you purchase a home to live in — not for investment or rental properties.

The 30-Day Withdrawal Rule

You can make a qualifying withdrawal up to 30 days after acquiring the home, as long as you had a written agreement in place before the purchase.

Missing this timing rule can turn a tax-free withdrawal into a taxable one.

How to Make a Qualifying FHSA Withdrawal (Step-by-Step Process)

Once you meet the conditions under the FHSA withdrawal rules, the next step is completing the withdrawal correctly. Accuracy and timing are essential to ensure the amount remains tax-free.

Required Forms

To make a tax-free qualifying withdrawal, you must complete Form RC725 – Request to Make a Qualifying Withdrawal from your FHSA.

This form requires you to confirm that:

• You are a qualifying first-time home buyer
• You have a written agreement to buy or build a qualifying home in Canada
• You intend to occupy the home as your principal residence

You must submit the completed Form RC725 to your financial institution — not directly to the CRA. Providing incorrect or incomplete information may cause the withdrawal to be treated as taxable income.

Contacting Your Financial Institution

Once Form RC725 is completed, submit it to the bank, credit union, or investment firm where your FHSA is held.

Before submitting, confirm:

• The exact amount you want to withdraw
• That your purchase agreement is already signed
• The expected processing timeline

Your financial institution will process the withdrawal and report it appropriately for tax purposes.

Timing Considerations

Timing is one of the most important parts of FHSA withdrawal rules.

To maintain tax-free status:

• You must have a signed written agreement before requesting the withdrawal
• You must be a Canadian resident at the time of withdrawal
• You can withdraw up to 30 days after taking ownership of the home

Withdrawing too early or missing the permitted window could result in the withdrawal becoming taxable. Careful coordination between your purchase agreement and withdrawal request helps protect your tax benefits.

What Happens If You Make a Non-Qualifying Withdrawal?

Not every withdrawal from your FHSA qualifies for tax-free treatment. If you take money out and do not meet the required conditions under the FHSA withdrawal rules, the withdrawal is considered non-qualifying — and it triggers tax consequences.

Understanding these consequences before withdrawing can prevent costly mistakes.

Is It Taxable?

Yes. A non-qualifying FHSA withdrawal is fully taxable.

The amount withdrawn is added to your income for the year and taxed at your marginal tax rate — just like regular income. This means the higher your income, the more tax you may pay on that withdrawal.

Unlike a qualifying withdrawal, you lose the tax-free advantage entirely.

Withholding Tax Explained

When you make a non-qualifying withdrawal, your financial institution is required to withhold tax at source.

The withholding tax rate depends on the amount withdrawn and follows the same structure used for RRSP withdrawals. However, withholding tax is only a prepayment — your actual tax owed may be higher or lower when you file your income tax return.

If your marginal tax rate is higher than the withholding rate, you may owe additional tax at filing time.

Impact on Your Contribution Room

A non-qualifying withdrawal does not restore your FHSA contribution room.

Unlike a TFSA, where withdrawals create new contribution room in the following year, FHSA contribution room is not replenished after a withdrawal. Once you withdraw funds, that room is permanently lost.

This makes improper withdrawals particularly costly from a long-term planning perspective.

Can You Re-Contribute the Amount?

In most cases, you cannot simply put the money back without using new available contribution room.

If you still have unused FHSA contribution room for the year (subject to annual and lifetime limits), you may contribute again — but it will count toward your remaining limit.

If you have already maximized your FHSA contribution limit, you cannot re-contribute the withdrawn amount.

This is why reviewing the FHSA withdrawal rules carefully before accessing funds is essential to preserving both tax benefits and contribution capacity.

The 15-Year FHSA Rule Explained

Under the FHSA withdrawal rules, your account cannot stay open indefinitely. The FHSA has a maximum lifespan, and understanding this timeline is essential for long-term planning.

If you do not use your FHSA to purchase a qualifying home within the permitted period, you must close the account — but you still have strategic options available.

When the 15-Year Clock Starts

The 15-year clock begins on January 1 of the year after you open your first FHSA.

For example, if you open your FHSA in July 2025, the 15-year period begins January 1, 2026, and the account must generally be closed by the end of 2040.

This deadline applies even if you have unused contribution room or have not made a qualifying withdrawal.

What Happens When the Account Expires

Your FHSA must be closed by the earliest of:

• The end of the 15th year after opening
• The year you turn 71
• The year following your first qualifying withdrawal

If you do not use the funds for a qualifying home purchase before the deadline, you cannot simply leave the money in the account.

At that point, you must either:

• Transfer the funds to an RRSP or RRIF (tax-free), or
• Withdraw the funds as taxable income

Failing to act before the deadline could result in unintended tax consequences.

Closing the FHSA

When closing your FHSA, you have two main options:

1️⃣ Transfer to an RRSP or RRIF (Tax-Free)
You can transfer the full balance to your RRSP or RRIF without triggering tax and without using your existing RRSP contribution room. This preserves the tax-deferred growth of your savings.

2️⃣ Withdraw the Funds (Taxable)
If you choose not to transfer the funds, the full amount withdrawn will be added to your taxable income for that year.

From a strategic standpoint, transferring to an RRSP is often the more tax-efficient option if you do not end up purchasing a home.

Understanding the 15-year rule ensures you don’t lose the tax advantages of your FHSA simply due to timing.

Transferring Your FHSA to an RRSP or RRIF

Under the FHSA withdrawal rules, if you do not use your funds for a qualifying home purchase, you are not forced to take a taxable withdrawal. Instead, you can transfer your FHSA balance directly to an RRSP or RRIF — often a smarter long-term strategy.

This option preserves the tax-deferred growth of your savings and avoids immediate taxation.

When Transfers Are Allowed

You can transfer your FHSA funds to an RRSP or RRIF:

• When you decide not to purchase a qualifying home
• When your 15-year FHSA limit is approaching
• When you are required to close the account
• Before the end of the year you turn 71

The transfer must be done directly between financial institutions to maintain tax-free status. If handled properly, it does not trigger immediate tax.

Tax Implications

A direct transfer from an FHSA to an RRSP or RRIF is not taxable at the time of transfer.

The funds continue to grow tax-deferred inside the RRSP or RRIF. You will only pay tax later when you withdraw money from the RRSP or RRIF in retirement.

However, if you withdraw the funds instead of transferring them, the amount becomes fully taxable in the year of withdrawal.

Does It Affect Your RRSP Contribution Room?

No. One of the major advantages under the FHSA withdrawal rules is that transferring your FHSA to an RRSP does not reduce your available RRSP contribution room.

This makes the FHSA uniquely flexible. Even if you have already maximized your RRSP contributions, you can still transfer your FHSA balance without penalty.

Strategic Planning Benefits

From a financial planning perspective, transferring your FHSA to an RRSP can:

• Preserve tax-deferred growth
• Avoid unnecessary taxable income
• Strengthen your long-term retirement savings
• Provide flexibility if home-ownership plans change

For Canadians who decide not to buy a home — or who miss the qualifying window — this option allows you to retain the tax advantages rather than losing them through a taxable withdrawal.

Understanding this part of the FHSA withdrawal rules ensures you maintain control over your savings strategy, whether you buy a home or pivot toward retirement planning.

Common FHSA Withdrawal Mistakes Canadians Make

Even though the FHSA offers powerful tax advantages, many Canadians misunderstand the FHSA withdrawal rules — and simple mistakes can turn a tax-free withdrawal into taxable income. Below are the most common errors to avoid.

Withdrawing Before Signing a Purchase Agreement

One of the most frequent mistakes is withdrawing funds before having a signed written agreement to buy or build a qualifying home.

Under FHSA withdrawal rules, you must have a written agreement in place before requesting a qualifying withdrawal. If you take money out too early, the withdrawal may be considered non-qualifying and become fully taxable.

Always secure your signed agreement first.

Not Meeting the First-Time Buyer Definition

Some Canadians assume they qualify as first-time home buyers without reviewing the eligibility rules carefully.

To meet FHSA withdrawal rules, you generally must not have owned and lived in a home in the current year or the previous four calendar years. If you owned a home during that period — even partially — you may not qualify for a tax-free withdrawal.

Confirm your eligibility before accessing funds.

Missing Occupancy Requirements

The FHSA is designed for purchasing a home you intend to live in.

If you plan to use the property strictly as a rental or investment property, it will not meet the principal residence requirement under FHSA withdrawal rules. You must intend to occupy the home as your primary residence within one year of purchase.

Failing to meet this condition can invalidate the tax-free status.

Confusing FHSA with TFSA

Many people mistakenly believe the FHSA works like a TFSA.

Unlike a TFSA:

• FHSA withdrawals do not restore contribution room
• Non-qualifying withdrawals are taxable
• Strict home purchase conditions apply

Misunderstanding this difference can lead to costly planning errors.

Poor Timing of Withdrawal

Timing is critical under FHSA withdrawal rules.

Common timing mistakes include:

• Withdrawing before signing the agreement
• Missing the 30-day post-purchase window
• Not coordinating the withdrawal with the closing date

Even if you qualify in principle, improper timing can jeopardize the tax-free benefit.

Carefully reviewing the FHSA withdrawal rules before requesting funds helps protect your tax advantages and ensures your home purchase strategy stays on track.

Real-Life FHSA Withdrawal Scenarios

Understanding FHSA withdrawal rules becomes much clearer when you see how they apply in real-life situations. Below are three practical examples that show the difference between tax-free, taxable, and strategic transfer outcomes.

Scenario 1 – Tax-Free Home Purchase

Sarah opened her FHSA in 2024 and contributed regularly. In 2026, she signs a written agreement to purchase her first home in Canada. She plans to move in immediately after closing.

Before the closing date, Sarah completes Form RC725 and submits it to her financial institution. She meets all FHSA withdrawal rules:

• She qualifies as a first-time home buyer
• She has a signed purchase agreement
• She is a Canadian resident at the time of withdrawal
• She intends to use the property as her principal residence

Result:
Her withdrawal is completely tax-free.

Scenario 2 – Early Withdrawal (Taxable)

Mark also has an FHSA but decides to withdraw $20,000 before signing any purchase agreement because he thinks he may buy a home later in the year.

Since he did not meet the qualifying conditions under FHSA withdrawal rules at the time of withdrawal:

• He had no written agreement
• The withdrawal was not tied to a qualifying home purchase

Result:
The $20,000 is treated as taxable income in that year. His financial institution withholds tax at source, and the amount is added to his total income when he files his return. He also does not regain the contribution room.

Scenario 3 – Transferring to RRSP After 15 Years

Emily opens her FHSA but later decides not to buy a home. After approaching the 15-year limit, she chooses to transfer the full FHSA balance directly into her RRSP.

Under FHSA withdrawal rules:

• The transfer is done directly between institutions
• No tax is triggered at the time of transfer
• Her RRSP contribution room is not affected

Result:
Her savings continue to grow tax-deferred in her RRSP instead of becoming taxable.

These examples show why understanding FHSA withdrawal rules before taking action is essential. The difference between a tax-free benefit and a taxable mistake often comes down to timing, eligibility, and proper documentation.

FHSA Withdrawal Rules at a Glance (Quick Comparison Table)

Understanding the differences under the FHSA withdrawal rules can help you avoid costly tax mistakes. The table below provides a quick comparison between a qualifying withdrawal, a non-qualifying withdrawal, and a transfer to an RRSP.

Feature	Qualifying Withdrawal	Non-Qualifying Withdrawal	Transfer to RRSP/RRIF
Purpose	Purchase or build a qualifying first home	Any withdrawal that does not meet FHSA conditions	Move funds for retirement planning
Tax Treatment	Tax-free	Fully taxable as income	Not taxable at time of transfer
Withholding Tax	No	Yes (withheld at source)	No
First-Time Buyer Required	Yes	No (but becomes taxable)	Not required
Written Purchase Agreement Required	Yes	No (but becomes taxable)	No
Contribution Room Restored?	No	No	Not applicable
Impact on RRSP Room	Not applicable	Not applicable	Does not reduce RRSP room
Long-Term Benefit	Tax-free home funding	Reduces savings due to taxes	Preserves tax-deferred growth

In summary:

• A qualifying withdrawal allows you to access your savings completely tax-free.
• A non-qualifying withdrawal results in taxation and possible loss of long-term growth.
• A transfer to an RRSP protects your savings if you decide not to purchase a home.

Reviewing the FHSA withdrawal rules carefully before making a decision ensures you choose the most tax-efficient option for your situation.

Should You Withdraw From Your FHSA Now?

Before taking money out, it’s important to pause and evaluate your situation carefully. The FHSA withdrawal rules are clear — but whether you should withdraw now depends on timing, tax positioning, and your broader financial strategy.

Timing Considerations

Ask yourself:

• Do you already have a signed purchase agreement?
• Is your closing date approaching?
• Are you within the permitted withdrawal window?

Withdrawing too early could make the amount taxable. Waiting too long could create unnecessary stress around your closing timeline. Proper coordination with your real estate transaction is essential to maintain tax-free status under FHSA withdrawal rules.

Tax Planning Strategy

Even if you qualify for a tax-free withdrawal, consider:

• Your current income level
• Your marginal tax rate
• Whether delaying the withdrawal could provide better flexibility

If you are unsure about purchasing a home, withdrawing prematurely could reduce long-term tax efficiency. In some cases, leaving the funds invested longer may strengthen your financial position.

Coordination with the RRSP Home Buyers’ Plan (HBP)

Many first-time buyers use both the FHSA and the RRSP Home Buyers’ Plan (HBP).

The key differences:

• FHSA qualifying withdrawals are tax-free and do not require repayment.
• RRSP withdrawals under the HBP must be repaid over time.

Strategically combining both programs can increase your down payment while balancing future repayment obligations. Understanding how FHSA withdrawal rules interact with the HBP can significantly impact your long-term cash flow.

Strategic Planning Perspective

Withdrawing from your FHSA is not just a transaction — it’s a financial decision with long-term implications.

A structured plan ensures:

• You meet all qualifying conditions
• You avoid unexpected taxes
• You align your withdrawal with your broader wealth and retirement strategy

Before making a final decision, reviewing the FHSA withdrawal rules in the context of your overall financial plan can help you move forward with clarity and confidence.

Final Thoughts: Planning Your FHSA Withdrawal the Smart Way

Understanding the FHSA withdrawal rules can mean the difference between a powerful tax-free advantage and an unexpected tax bill. While the rules are straightforward on paper, the timing and coordination around your home purchase are where many Canadians make costly mistakes.

Recap of Key Rules

To ensure your withdrawal remains tax-free, remember:

• You must qualify as a first-time home buyer
• You need a signed written agreement before withdrawing
• The property must be your principal residence
• You must follow the required timing rules
• Non-qualifying withdrawals are fully taxable
• Transfers to an RRSP remain tax-efficient and do not reduce RRSP room

When applied correctly, the FHSA provides one of the most powerful tax advantages available to first-time home buyers in Canada.

Why Planning Matters

An FHSA withdrawal should not be treated as a simple transaction. It should be coordinated with:

• Your closing timeline
• Your RRSP Home Buyers’ Plan strategy
• Your tax position for the year
• Your long-term retirement planning

Careful planning ensures you protect both your immediate down payment and your long-term wealth strategy.

Need Guidance Before You Withdraw?

If you’re considering accessing your FHSA and want to ensure you’re applying the FHSA withdrawal rules correctly, a personalized review can help you avoid unnecessary taxes and structure your withdrawal strategically.

Before submitting Form RC725, it may be worth having a conversation to ensure your home purchase and tax planning are aligned properly.

A short consultation today could protect thousands in avoidable tax costs tomorrow.

Frequently Asked Questions About FHSA Withdrawal Rules