How to Save for a Home Purchase: Navigating the Maze of Tax-Advantaged Accounts
For many Canadians, the dream of homeownership has become a daunting prospect. With property prices still climbing in major cities and closing costs adding up, the question of how best to save for a down payment is more pressing—and complex—than ever. Yet, Canada’s financial toolkit for aspiring homebuyers is richer than it first appears. The challenge lies in knowing how to deploy it.
Over the past decade, Ottawa has steadily expanded the roster of tax-advantaged accounts available to savers. The Registered Retirement Savings Plan (RRSP) has long been a staple, offering tax deductions and the Home Buyers’ Plan (HBP) for first-time purchasers. The Tax-Free Savings Account (TFSA) provides flexibility and tax-free growth. Most recently, the First Home Savings Account (FHSA) has emerged as a hybrid, combining the best features of its predecessors. Beyond these, non-registered accounts remain an option for those with savings to spare.
But which account should take priority? A rational allocation of funds can mean the difference between years of extra saving and a swift entry into the property market.
The New Hierarchy of Home Savings
The FHSA, introduced to much fanfare, is now the clear frontrunner for first-time buyers. It allows Canadians to contribute up to $8,000 annually, to a lifetime maximum of $40,000. Contributions are tax-deductible, and withdrawals, along with any investment gains, are tax-free if used for a qualifying home purchase. Unlike the RRSP’s HBP, there is no requirement to repay withdrawn funds. For those eligible, maximizing the FHSA is a no-brainer.
First home savings account (FHSA) Constraints:
For Canadian residents who are at least 18 years old and are first-time homebuyers.
Maximum $40,000 in contributions.
For a home you will live in, rentals are ineligible.
Next in line is the venerable registered RRSP, specifically through the Home Buyers' Plan (HBP). Here, savers can withdraw up to $60,000 for a first home, provided they pay it back over 15 years. The RRSP’s main attraction is its immediate tax deduction, which is especially valuable for higher earners. However, the repayment obligation and the potential for lost retirement growth make it a less flexible tool than the FHSA.
RRSP Home Buyers' Plan (HBP) Constraints:
For Canadian residents who are at least 18 years old and are first-time homebuyers.
Maximum $60,000 withdrawal, which must be repaid over 15 years.
For a home you will live in, rentals are ineligible.
Then the TFSA offers tax-free growth and withdrawals for any purpose, including homebuying. It is especially useful for savers who have exhausted their FHSA and RRSP options, or who value the ability to access funds at any time without penalty or repayment.
TFSA Constraints:
For Canadian residents who are at least 18 years old. Any contributions made while a non-resident will be subject to a 1% tax for each month the contribution stays in the account.
Only after these registered accounts are maxed out should savers turn to non-registered accounts, where investment income is taxable and no special incentives apply.
A Tax-Efficient Roadmap
The following table summarizes the hierarchy and key features of each account:
| Account Type | Tax Deductible | Tax-Free Growth | Tax-Free Withdrawals | Annual Limit (2025) | Repayment Required | Priority |
|---|---|---|---|---|---|---|
| FHSA | Yes | Yes | Yes (if for home) | $8,000 ($40,000 max) | No | 1 |
| RRSP (HBP) | Yes | Yes | Yes (if for home) | 18% of income ($32,490) | Yes (over 15 yrs) | 2 |
| TFSA | No | Yes | Yes | $7,000 | No | 3 |
| Non-Registered | No | No | No | No limit | No | 4 |
The upshot? For those plotting a course to homeownership, the order of operations is clear: fill the FHSA first, then the RRSP (if the HBP is available), then the TFSA, and only then consider non-registered savings. This sequence maximizes tax relief and investment growth, accelerating the journey to a front door of one’s own.
As policymakers continue to tweak the rules and as markets evolve, the optimal path may shift. For now, though, the savviest Canadian savers will be those who navigate this hierarchy with care, turning government incentives into bricks and mortar.
