The FHSA tax deduction
Contributions to your FHSA are generally tax-deductible, which is half of the account's double advantage. The deduction reduces your taxable income for the year you claim it, so its cash value depends on your marginal tax rate: the same $8,000 contribution saves more tax for a higher-rate taxpayer than for a lower-rate one. The timing rules are generous in one way and strict in another, and they differ from the RRSP rules in a way that catches people out.
When can you claim?
You can claim an FHSA deduction in the year you make the contribution, or you can carry the deduction forward and claim it in a later year. This is useful if you expect to be in a higher tax bracket later: a contribution made while you are a student or in a low-income year can be deducted later when the saving is larger. Note that this deduction carry-forward is a different mechanism from participation room carry-forward, and the CRA keeps the two calculations separate. The maximum you may deduct is the lesser of your total annual FHSA limits minus deductions already claimed, and $40,000.
No 60-day rule: the deadline is 31 December
Unlike an RRSP, where contributions in the first 60 days of a year can be deducted for the previous year, the FHSA has no 60-day rule. Only amounts contributed between 1 January and 31 December count for that calendar year. A contribution made on 2 January counts for the new year, not the old one, and missing 31 December delays the tax benefit by a full year. If you plan a year-end contribution, make it well before the holidays, because your issuer's processing cut-off may be earlier than 31 December.
What is not deductible
Transfers from your RRSPs to your FHSAs are not deductible: you already received a deduction when the money went into the RRSP, and the CRA does not give it twice. Transfers from a spousal RRSP are likewise not deductible to you as a new contribution. Growth inside the account is not taxed as it accrues, and a qualifying withdrawal is not included in income at all, so there is no second tax event on the way out for a qualifying home.
How the deduction is reported
You report FHSA activity on Schedule 15, FHSA Contributions, Transfers and Activities, filed with your income tax and benefit return for the year you opened your first FHSA, even if you made no contributions that year. The deduction itself goes on line 20805 of your return. Your issuer sends you a T4FHSA slip showing total contributions in box 18, RRSP transfers in box 32, and spousal RRSP transfers in box 34. After your return is assessed, your FHSA participation room statement appears on your notice of assessment, on a notice of reassessment, or on Form T1028, and in your CRA account under the Savings and pension plans tab. If your returns are not all filed and assessed, the room statement may be inaccurate, so file every year, even a year with no income.
Do not confuse the two carry-forwards
Participation room carry-forward decides how much you may put in next year. Deduction carry-forward decides when you claim the tax saving. You can have room without a deduction (an RRSP transfer uses room but gives no deduction), and you can have a deduction waiting to be claimed while your room for the year is already used. Track them separately, and check both on your notice of assessment.
Sources: Canada Revenue Agency, Participating in your FHSAs (reporting, Schedule 15, T4FHSA boxes, room statement); Canada Revenue Agency, First Home Savings Account (FHSA) hub (transfers not deductible); Canada Revenue Agency, FHSA guidance on deductions (line 20805).