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.

How to calculate your excess FHSA amount

Your excess FHSA amount at a particular time of the year is calculated as follows:

Example – Calculating your excess FHSA amount

Ridwan opens his first FHSA in March 2024. Ridwan’s FHSA participation room for 2024 is $8,000 because this is the first year he opens an FHSA.

On April 10, 2024, Ridwan transfers $7,500 from his RRSP to his FHSA. He also contributes $2,000 to his FHSA on the same day.

Ridwan’s total contributions and transfers to his FHSAs is $9,500, which is more than his $8,000 FHSA participation for 2024. This creates an excess FHSA amount of $1,500 on April 10, 2024.

  • $0 (excess FHSA amount at the end of 2023)
  • +plus $9,500 ($7,500 transfer + $2,000 contribution)
  • -minus $0 (designated amounts up to April 2024)
  • -minus $0 (taxable withdrawals up to April 2024)
  • -minus $0 (amounts deemed received on cessation of FHSAs up to April 10, 2024)
  • -minus $0 (unused FHSA re-participation room at the end of 2023)
  • -minus $8,000 ($8,000 + $0 FHSA participation room carryforward for 2024)
  • =eqauls $1,500 (Ridwan’s excess FHSA amount as of April 10, 2024)

In May 2024, Ridwan finds out that he has an excess FHSA amount. In an effort to resolve his excess FHSA amount, Ridwan fills out Form RC727, Designate an Excess FHSA Amount as a Withdrawal from your FHSA or as a Transfer to your RRSP or RRIF, to make a designated withdrawal of $1,500 and gives it to his financial institution. The designated withdrawal is completed on May 15, 2024.

Ridwan’s designated withdrawal of $1,500 eliminates the excess FHSA amount as of May 15, 2024.

  • $0 (excess FHSA amount at the end of 2023)
  • +plus $9,500 ($7,500 transfer + $2,000 contribution)
  • -minus $1,500 (designated amounts up to May 15, 2024)
  • -minus $0 (taxable withdrawals up to May 15, 2024)
  • -minus $0 (amounts deemed received on cessation of FHSAs up to May 15, 2024)
  • -minus $0 (unused FHSA re-participation room at the end of 2023)
  • -minus $8,000 ($8,000 + $0 FHSA participation room carryforward for 2024)
  • =eqauls $0 (Ridwan’s excess FHSA amount as of May 15, 2024 (after the designated withdrawal))

Ridwan is aware that he will have to pay a 1% tax on the highest excess FHSA amount for each of the months of April and May. He also has to file Forms RC728, First Home Savings Account (FHSA) Return, and RC728-SCH-A Schedule A, Excess FHSA Amounts, to report and pay the tax on his excess FHSA amount.

In order to properly calculate your excess FHSA amount, you have to know some of the terms that are used in the calculation. Refer to the sections below to understand what the different variables mean and how to calculate them.

FHSA re-participation room

The portion of your taxable withdrawals or the amounts deemed received by you when your account loses its status as an FHSA that did not reduce or eliminate your excess FHSA amount is referred to as your FHSA re-participation room. This is amount is added in the calculation of your FHSA participation room .

The portion of your FHSA re-participation room that you used up by making contributions or transfers to your FHSAs is called your total FHSA re-participation room used.

For more information about calculating your used and unused FHSA re-participation room, go to How to calculate your FHSA participation room.

FHSA participation room carryforward

Your FHSA participation room carryforward is the amount you are permitted to carryforward for the purposes of your FHSA participation room and the calculation of your excess FHSA amounts.

This is different from your FHSA carryforward  which is used to calculate your annual FHSA limit and how much you can claim as an FHSA deduction.

For more information about calculating your FHSA participation room carryforward, go to How to calculate your FHSA participation room.

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 Form RC728, First Home Savings Account (FHSA) Return, and Form RC728-SCH-A Schedule A, Excess FHSA Amounts, to report your excess FHSA amount and determine the amount of tax payable. For more information about the RC728 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.

Your FHSA issuer will give you a T4FHSA slip, First Home Savings Account Statement showing the total amount of designated transfers from your FHSAs to your RRSPs in box 36 and the total amount of designated withdrawals from your FHSAs in box 38. For more information on reporting your FHSA activities to the CRA, go to Reporting FHSA activities on your income tax and benefit return.

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