FHSA and US Taxes, Explained

In Canada, the First Home Savings Account (FHSA, introduced in April 2023 under Income Tax Act s.146.6) combines the best feature of an RRSP (tax-deductible contributions up to $8,000/year and $40,000 lifetime) with the best feature of a TFSA (tax-free growth and tax-free withdrawals for a qualifying first home). For a US citizen, Green Card holder, or Canadian who moves to the US and becomes a US tax resident, neither of those features exists on a US tax return.

Why the Canada-US tax treaty doesn't cover the FHSA

The Canada-US Tax Convention was last amended by the Fifth Protocol in 2007, sixteen years before the FHSA existed. Even more importantly, Article XVIII(7) of the treaty covers plans that are operated exclusively to provide pension, retirement, or employee benefits. Because an FHSA's primary statutory purpose is funding a first home purchase (even though unused balances can eventually transfer into an RRSP or RRIF after 15 years), cross-border tax practitioners treat the FHSA the same way they treat a TFSA: as a non-exempt foreign account with zero US treaty protection.

The PFIC and foreign-trust questions inside an FHSA

Just like a TFSA or RESP, an FHSA wrapper provides no exemption from the IRS's Passive Foreign Investment Company (PFIC) rules under Treasury Regulation 1.1298-1(c)(4) (which protects only treaty-recognized pension plans like RRSPs and RRIFs). If your FHSA holds a Canadian-listed cash ETF (like CASH.TO), a Canadian asset-allocation ETF, or a bank mutual fund while you are a US person, each fund is a PFIC requiring annual Form 8621 reporting and exposing you to punitive Section 1291 excess-distribution tax unless a QEF or Mark-to-Market election is in place (see PFICs and Canadian ETFs, Explained).

In addition, because the IRS has not yet issued a formal Revenue Procedure specifically addressing FHSAs (and Rev. Proc. 2020-17 predates the FHSA by three years), some conservative cross-border CPAs evaluate whether a trusteed FHSA arrangement could require Form 3520 / 3520-A foreign-trust reporting, while others treat a self-directed custodial or deposit FHSA like a TFSA custodial account. Either way, the account balance unambiguously counts toward both your $10,000 FBAR aggregate test and your Form 8938 (FATCA) thresholds (see FBAR and FATCA for Canadians in the US).

What to do if you already opened an FHSA before moving to the US

First, remember that an FHSA is exempt from Canada's departure tax under Income Tax Act s.128.1(4)(b): the CRA does not deem your FHSA sold when you leave Canada (see Canada's Departure Tax, Explained). However, you cannot make a qualifying tax-free home-purchase withdrawal from an FHSA while you are a non-resident of Canada (a non-resident withdrawal is subject to 25% Canadian non-resident withholding tax).

If you plan to keep an existing FHSA while working in the US with the goal of moving back to Canada later to buy a home, switch the holdings inside the FHSA out of Canadian mutual funds and ETFs (into a plain GIC, high-interest savings deposit, or individual stocks) before your US tax residency begins, so you only deal with ordinary annual interest/dividend reporting on Form 1040 rather than Form 8621 PFIC filings.

FHSA vs. RRSP vs. TFSA for US tax residents

Not tax, legal, or immigration advice: because the IRS has not issued FHSA-specific guidance, confirm your filing position with a cross-border CPA before holding an FHSA as a US person. Check your holdings with the PFIC Risk Checker and review your full account mix on the CoastFIRE Calculator.