Tax implications for FHSAs

Find out the tax implications on excess FHSA amounts, non-qualified investments, prohibited investments and an advantage.

On this page

• Tax implications on excess FHSA amounts
• Tax implications on non-qualified investments
• Tax implications on prohibited investments
• Tax implications on an advantage

Tax implications on excess FHSA amounts

Generally, FHSA holders are liable to pay a tax of 1% per month on the highest excess FHSA amount in that month. The tax applies until such time as the excess FHSA amount is eliminated. For more information, go to Tax on excess FHSA amounts.

The application of these taxes will be administered by the CRA. Depending on how an excess FHSA amount was reduced or eliminated, the FHSA issuer may need to report any of the following:

• Designated – withdrawal
• Designated – RRSP/RRIF transfer out
• Taxable withdrawal
• Amount deemed received on FHSA cessation

For more information, go to Appendix A - T4FHSA Data elements – T4FHSA individual electronic record.

Tax implications on non-qualified investments

If an FHSA trust holds a non-qualified investment or carries on a business, the FHSA is taxable on any income earned on, and any capital gains derived from the non-qualified investment or business. The trust must report such income on a T3RET T3 Trust Income Tax and Information Return.

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.

If, in a calendar year, an FHSA trust acquires property that is a non-qualified investment or if previously acquired property becomes non-qualified, there are consequences for the FHSA holder in terms of reporting requirements and tax payable. 

The FHSA issuer has to report details of the non-qualified investment on the T4FHSA information return. For more information, go to Appendix A - T4FHSA Data elements – T4FHSA individual electronic record.

In addition, the FHSA issuer must provide the FHSA holder with the following information by the end of February following the reporting year:

• Description of the investment
• Date of acquisition or disposition, as applicable, and the FMV of the investment at that date
• FHSA contract or account number

Responsibility for compliance with the qualified investment rules generally lies with FHSA issuers. In this regard, FHSA issuers must take reasonable care to ensure that FHSAs do not hold non-qualified investments.

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

Tax implications on prohibited investments

If, in a calendar year, an FHSA trust acquires property that is a prohibited investment or if previously acquired property becomes prohibited, there are consequences for the FHSA holder in terms of reporting requirements and tax payable. 

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

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

Tax implications on an advantage

In most cases the FHSA holder is liable for any advantage tax. However, if the advantage is considered to be extended by the FHSA issuer, or by a person not dealing at arm's length with the issuer, the issuer is liable to pay the advantage tax, rather than the FHSA holder.

If the issuer is liable to pay tax on an advantage, the issuer must fill out and file Form RC298, Advantage Tax Return for RRSP, TFSA, FHSA or RDSP issuers, RESP promoters or RRIF carriers to the CRA by June 30 after the end of the calendar year.

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