What happens if you contribute or transfer too much to your FHSAs

You may need to pay taxes if you contribute or transfer more to your first home savings accounts (FHSAs) than your FHSA participation room  for the year allows. Learn about how much tax you will be charged if you have an excess FHSA amount  and the different ways to reduce or eliminate your excess FHSA amounts.

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What is an excess FHSA amount

You may have an excess FHSA amount if the total of your contributions to your FHSAs and transfers from your registered retirement savings plans (RRSPs)  to your FHSAs in a year are more than your FHSA participation room for that year.

Tax on excess FHSA amounts

Generally, you have to pay a tax of 1% per month on the highest excess FHSA amount in that month. You will continue to pay the monthly 1% tax until the excess FHSA amount is eliminated. Your excess FHSA amount will be reduced or eliminated by your new FHSA participation room (on January 1 of the following year), or by removing amounts from your FHSAs. 

If you have an excess FHSA amount, you must file a return to report your excess FHSA amount 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.

Removing excess FHSA amounts

An excess FHSA amount can be reduced or eliminated by any of the following:

Designated withdrawals and transfers

It is important to note that a designated amount is limited to the excess FHSA amount at the time of the designation. You are not able to designate an amount if you do not have an excess FHSA amount.

If you make a designated withdrawal, the amount of the withdrawal is not required to be included as income on your income tax and benefit return of that year.

If you make a designated transfer, the amount of the transfer is not required to be included as income on your income tax and benefit return of that year. A designated transfer will not impact your unused RRSP deduction room .

Taxable withdrawals

If you make a taxable withdrawal, the amount withdrawn must be included as income on your income tax and benefit return for the year received. For more information on taxable withdrawals, go to Withdrawals and transfers out of your FHSAs.

How to make a designated withdrawal or designated transfer

In order to make a designated withdrawal or designated transfer  you must fill out Form RC727, Designate an Excess FHSA Amount as a Withdrawal from your FHSA or as a Transfer to your RRSP or RRIF and give it to your FHSA issuer .

If you only made contributions to your FHSAs up to the date of designation:

If you only made transfers from your RRSPs to your FHSAs up to the date of designation:

If you made both transfers from your RRSPs to your FHSAs and contributions to your FHSAs:

The amount of your designated withdrawal cannot exceed the total amount of contributions to your FHSAs as of the date of designation minus the total amount of any previously designated withdrawals.

The amount of your designated transfer cannot exceed the total amount of transfers to your FHSAs as of the date of designation minus the total amount of any previously designated transfers.

Depending on your situation, you may be required to make both a designated withdrawal and a designated transfer to eliminate your excess FHSA amount.

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