Watch Out! Avoiding FHSA "Over-Participation" (Part 4/5)
- Natesh Pillai
- Aug 7
- 1 min read
While the First Home Savings Account (FHSA) offers fantastic benefits, it's important to stick to the rules, especially when it comes to contribution limits. Accidentally contributing too much can lead to an "excess amount" and some unexpected tax consequences.
What is Over-Participation? This happens when you contribute (or transfer from an RRSP) more money into your FHSA than your available "participation room" allows. Remember, you start with $8,000 of room when you open the account, and gain another $8,000 each year, up to a $40,000 lifetime limit.
The Tax Consequence: If you have an excess amount in your FHSA, you might have to pay a special tax on that amount for each month it remains in your account. This is usually a 1% tax on the highest excess amount for that month. It's the CRA's way of discouraging over-contributions.
How to Fix It: If you find yourself with an excess amount, you can generally fix it by making a "designated withdrawal" from your FHSA. This process involves specific CRA forms to properly track and remove the excess, preventing or reducing the monthly tax.
Always keep track of your contributions and available room to avoid these unexpected taxes and make the most of your FHSA benefits!
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