Canada FHSA Calculator

Worked example

Take the default plan: contribute the $8,000 annual maximum for 5 years at a 6 percent return, on a 40 percent marginal tax rate. Five years at $8,000 is $40,000, which is exactly the lifetime FHSA cap, so the account is fully funded. Treating each year’s contribution as an annuity growing at 6 percent, the balance compounds to about $47,803 by the time the home is bought, roughly $7,800 of investment growth on top of the $40,000 put in. Separately, because FHSA contributions are deductible like an RRSP, the $40,000 of deposits cut taxable income and saved about $16,000 in tax at the 40 percent rate over those years. When the money is withdrawn to buy a qualifying first home, both the contributions and the growth come out completely tax-free, which is the feature that makes the FHSA more generous than either an RRSP or a TFSA for this single purpose.

How it is calculated

The First Home Savings Account combines the deduction of an RRSP with the tax-free withdrawal of a TFSA, capped at $8,000 a year and $40,000 over its lifetime. The tool first caps your inputs at those limits, then treats the contributions as a series of equal annual deposits and compounds them at your chosen return using the future-value-of-an-annuity formula, with each year’s deposit earning growth for the years that follow. The tax saving is computed separately as total contributions multiplied by your marginal rate, reflecting the income tax the deductions shelter at the time you contribute. The headline balance and the tax saving are two distinct benefits and should not be added together, since one is the pot you withdraw and the other is cash flow you keep along the way. The model assumes a steady return and that you stay within the caps; in practice unused annual room can carry forward up to a limit, and the account must be used for a qualifying first home or rolled into an RRSP.