Investments in your FHSAs - Canada.ca (2024)

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• Types of permitted investments in an FHSA
• Foreign funds in an FHSA
• "In-kind" contributions or transfers to an FHSA
• Tax payable on non-qualified investments
• Tax payable on prohibited investments
• Refund of taxes paid on non-qualified or prohibited investments
• Tax payable on an advantage

Types of permitted investments in an FHSA

FHSAs are required to limit their investments to qualified investments. The qualified investments rules apply to the FHSAs that are set up as a trust. For more information about the types of FHSAs that can be offered, go to Opening your FHSAs.

The following are common types of qualified investments:

• cash
• mutual funds
• most securities listed on a designated stock exchange
• guaranteed investment certificates (GIC)
• Canada savings bonds and provincial savings bonds
• certain shares of small business corporations

Your issuer will advise you on the types of FHSAs and the qualified investments they offer. Note that the issuer may have internal policies that further limit the types of qualified investments that may be held in your FHSAs.

For more information on qualified investments, go to Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.

Foreign funds in an FHSA

You can contribute or transfer foreign funds to your FHSAs. However, your FHSA issuer will convert the funds to Canadian dollars (using the exchange rate on the date of the transaction) when reporting this information to the Canada Revenue Agency (CRA).

The total amount of your contributions to your FHSA, or transfers from your RRSPs to your FHSAs, in Canadian dollars, cannot be more than your FHSA participation room for the year.

If dividend income from a foreign country is paid to an FHSA, the dividend income could be subject to foreign withholding tax.

"In-kind" contributions or transfers to an FHSA

You can make “in-kind” contributions of property (for example, securities you hold in a non-registered account) to your FHSAs, as long as the property is a qualified investment. “In-kind” contributions include contributions of property from any source, other than an RRSP or an FHSA.

You can also make “in-kind” transfers of property from your RRSPs or FHSAs to your FHSAs as long as the property is a qualified investment.

If you make an “in-kind” contribution to your FHSA, you will be considered to have disposed of the property at its fair market value (FMV) at the time of the contribution. The normal capital gain/loss rules will apply to the disposition.

The amount of the contribution to your FHSAs will be equal to the FMV of the property at the time of contribution.

Tax payable on non-qualified investments

If, in a calendar year, a trust governed by an FHSA acquires property that was a non-qualified investment, or if previously acquired property becomes non-qualified, a tax is imposed on the holder of the FHSA.

The tax is equal to 50% of the FMV of the property at the time it was acquired or that it became non-qualified. The holder must file an FHSA return to report the non-qualified investment and determine the amount of tax they owe. For more information about the return and when it will have to be filed, go to FHSA taxes payable, assessments and reassessments.

When the non-qualified investment ceases to be a non-qualified investment while it is held by the FHSA trust, the FHSA trust is considered to have disposed of the property at its FMV right before that timeand to have re-acquired the property for the same amount at the same time.

The tax is refundable in certain circ*mstances. For more information, go to Refund of taxes paid on non-qualified or prohibited investments.

The FHSA holder is also liable for the 100% advantage tax on specified non-qualified investment income if this income is not withdrawn promptly.

Income earned and capital gains realized by an FHSA trust on non-qualified investments will continue to be taxable to the trust, regardless of when the investment was acquired.

For more information on non-qualified investments or carrying on a business in an FHSA, go to Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.

Tax payable on prohibited investments

If, in a calendar year, an FHSA trust acquires property that was a prohibited investment, or if previously acquired property becomes prohibited, the holder will be subject to a tax equal to 50% of the FMV of the investment. The holder must file an FHSA return to report the prohibited investment and determine the amount of tax payable. For more information about the return and when it will have to be filed, go to FHSA taxes payable, assessments and reassessments.

When the prohibited investment ceases to be a prohibited investment while it is held by the FHSA trust, the FHSA trust is considered to have disposed of the property at its FMV right before that timeand to have re-acquired the property for the same amount at the same time.

The tax is refundable in certain circ*mstances. For more information, go to Refund of taxes paid on non-qualified or prohibited investments.

If an investment is both a non-qualified investment and a prohibited investment, it is only treated as a prohibited investment.

The FHSA holder is also liable for the 100% advantage tax on income earned and capital gains realized on prohibited investments. The 100% advantage tax applies to income earned, and the portion of any realized capital gain that accrued, regardless of when the prohibited investment generating the income or gain was acquired.

For more information on prohibited investments, go to Income Tax Folio S3-F10-C2, Prohibited Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.

Refund of taxes paid on non-qualified or prohibited investments

You may be entitled to a refund of the 50% tax on non-qualified or prohibited investments if either:

• The FHSA trust disposes of the property in question before the end of the calendar year following the calendar year in which the tax arose
• The property ceased to be a non-qualified or prohibited investment before the end of the calendar year following the calendar year in which the tax arose

However, no refund will be issued if it is reasonable to expect that the FHSA holder knew, or should have known at the time that the property was acquired by the FHSA, that the property was or would become a non-qualified or a prohibited investment.

The refund applies to the 50% tax on non-qualified or prohibited investments but not to the 100% tax on advantages.

If the 50% tax on non-qualified or prohibited investments and the entitlement to the refund of that tax arose in the same calendar year, then a remittance of the tax is not required. For example, no remittance of tax would be required if an FHSA trust acquired and disposed of a non-qualified investment in the same calendar year.

How to claim a refund

To claim a refund, you must:

• send your request in writing
• include appropriate documents detailing the information relating to the acquisition and disposition of the non-qualified or prohibited property. The documents must contain the following:
  • name and description of the property
  • number of shares or units
  • date the property was acquired or became non-qualified or prohibited property
  • date of the disposition or the date that the property became qualified or ceased to be prohibited

You can attach the written request and the supporting documents to your RC728, First Home Savings Account (FHSA) Return. For more information about the Form RC728, go to FHSA taxes payable, assessments and reassessments.

If the disposition took place in the same year as the acquisition, enter the refundable amount on line F in Step 2, Part E of the RC728, and attach the documents to your return.

If the property disposed of was acquired in a previous year, send your request and any supporting documents to one of the following tax centres:

If your residential address is based in Ontario, Prince Edward Island, Newfoundland and Labrador, Yukon, Nunavut, Northwest Territories and the following Quebec cities: Montréal, Québec City, Laval, Sherbrooke, Gatineau, and Longueuil, send the signed letter to:

Canada Revenue Agency
Sudbury Tax Centre
FHSA Processing Unit
Post Office Box 20000, Station A
Sudbury ON P3A 5C1

If your residential address is based in Manitoba, Saskatchewan, Alberta, British Columbia, Nova Scotia, New Brunswick and the remaining areas of the province of Quebec not listed under the Sudbury Tax Centre, send the signed letter to:

Canada Revenue Agency
Winnipeg Tax Centre
FHSA Processing Unit
Post Office Box 14000, Station Main
Winnipeg MB R3C 3M2

Reporting requirements by the FHSA issuer

FHSA issuers are required to report information to you as an FHSA holder, and to the CRA when an FHSA trust begins or ceases to hold a non-qualified investment in a year.

FHSA issuers, must, by no later than the end of February in the year following the year in which the non-qualified property was acquired or previously acquired property became non-qualified, provide relevant information to the FHSA holder and the CRA. This information includes:

• a description of the non-qualified investment
• the date that the non-qualified investment was acquired or disposed of (or became or ceased to be non-qualified), as applicable, and the FMV of the investment at that date
• the FHSA contract or account number

This information is necessary to enable the FHSA holder to determine the amount of any tax payable or of any possible refund of tax previously paid.

Tax payable on an advantage

If the holder or an individual not dealing at arm's length with the holder (including the FHSA itself) was provided with anadvantage in relation to their FHSA during the year, a 100% tax is payable which is:

• in the case of a benefit, the FMV of the benefit
• in the case of a loan or debt, the amount of the loan or debt
• in the case of a registered plan strip*, the amount of the registered plan strip

The FHSA holder subject to this tax must file an FHSA return to report the tax on advantage and determine the amount of tax payable. For more information about the return and when it should be filed, go to FHSA taxes payable, assessments and reassessments.

For more information on advantage, go to Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.