16 January 2026 Internal T.I. 2024-1029241I7 - FHSA and Individuals registered under the IA

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: What is the tax treatment of first home savings account ("FHSA") contributions and withdrawals by a First Nation individual who qualifies for the tax exemption under section 87 of the Indian Act (the "IA")?

Position: Administratively, the portion of FHSA contributions that were not deducted as they pertain to exempt income under the IA are not included in income on withdrawal, even where such withdrawals do not constitute "qualifying withdrawals". It is a question of fact whether the investment income portion of such withdrawals is situated on a reserve and thus exempt from tax under the IA.

Reasons: Prior positions, interpretation of the legislation.

							January 16, 2026

XXXXXXXXXX						HEADQUARTERS
		   					Income Tax Rulings Directorate
							Specialty Tax Division
							Simon Morin

Attention: XXXXXXXXXX				2024-102924	

RE: First home savings account contributions and withdrawals and the tax exemption under section 87 of the Indian Act

This is in response to your enquiry asking about the tax treatment of contributions to, and withdrawals from, a first home savings account (FHSA) by an individual who is registered or entitled to be registered under the Indian Act (First Nation individual) and whose income is tax-exempt under section 87 of the Indian Act (IA). Your enquiry also gives rise to the related issue of whether a First Nations individual can be considered to own a home located on reserve land. We apologize for the delay in our response.

Where a First Nation individual meets the definition of a qualifying individual in subsection 146.6(1) of the Income Tax Act (ITA), they can open an FHSA and contribute to it within certain limits. In general, a qualifying individual is an individual who is a resident of Canada, at least 18 years of age, and a first-time home buyer. For purposes of opening an FHSA, an individual is considered to be a first-time home buyer if they did not, at any prior time in the calendar year in which the FHSA is opened or in the preceding four calendar years, inhabit as a principal place of residence a qualifying home (or what would be a qualifying home if it were located in Canada) that was owned, whether jointly with another person or otherwise, by either the individual, or by their spouse or common-law partner (if they have a spouse or common-law partner at the time the account is opened).

A qualifying home, as defined in subsection 146.6(1) of the ITA, is a housing unit located in Canada or a share of the capital stock of a cooperative housing corporation which entitles the holder to possess and have an equity interest in a housing unit located in Canada. Where the housing unit is located on reserve land, a First Nation individual who is in lawful possession of the reserve land under section 20 of the IA, which may be evidenced by a certificate of possession, is considered to own and to have acquired a qualifying home for purposes of the FHSA.

Under the FHSA, contributions are generally tax-deductible, and qualifying withdrawals (including investment income earned) are non-taxable. If the First Nation individual only earns income that is tax-exempt under section 87 of the IA, they would not have the benefit of a deduction from income on contributions made to their FHSA. Whether an amount received by a First Nation individual from their FHSA is included in their income depends first on whether it constitutes a qualifying withdrawal as defined in subsection 146.6(1) of the ITA.

The following conditions have to be met in order for an amount received by an individual from their FHSA to be considered a qualifying withdrawal:

• the individual must make a written request in prescribed form in which the individual sets out the location of a qualifying home that the individual has begun using as a principal place of residence or that the individual intends not later than one year after its acquisition by the individual to begin using as a principal place of residence;
• the individual must be a resident of Canada throughout the period from the time the withdrawal is made until the earlier of the acquisition date of the qualifying home or the date of the individual’s death;
• the individual must have entered into a written agreement before the withdrawal for the acquisition or construction of the qualifying home before October 1 of the year following the year of withdrawal;
• the individual did not acquire the qualifying home more than 30 days before the withdrawal; and
• the individual is a first-time home buyer at the time the withdrawal is made from their FHSA.

A first-time home buyer for purposes of making a qualifying withdrawal, is an individual who did not live in a qualifying home (or what would be a qualifying home if it were located in Canada), as their principal place of residence, that they owned or jointly-owned at any time in the current calendar year before the withdrawal is made (except the 30 days immediately before the withdrawal) or at any time in the preceding four calendar years.

The amount a First Nation individual receives from their FHSA that is a qualifying withdrawal is not included in their income. While amounts received from an FHSA that are not qualifying withdrawals are generally included in income, it is our view that the existing Canada Revenue Agency (CRA) treatment of withdrawals by a First Nations individual of RRSP contributions made out of income that was tax-exempt under the IA (footnote 1) could be applied to withdrawals of FHSA contributions that were made out of income that was tax-exempt under the IA. That is, the withdrawals of those contributions would not be included in the income of the First Nation individual since no deduction was available when the contributions were made. Conversely, amounts withdrawn from an FHSA that are not qualifying withdrawals, and that represent investment earnings on those FHSA contributions, would generally be required to be included in the income of the First Nation individual, unless those earnings are determined to be tax-exempt.

The income of a First Nation individual is exempt from income tax under section 87 of the IA and paragraph 81(1)(a) of the ITA only if the income is situated on a reserve. The courts have established that determining whether income is situated on a reserve, and thus exempt from tax, requires identifying the various factors connecting the income to a reserve and weighing the significance of each factor. This is referred to as the connecting factors test.

The CRA’s position on whether investment income is situated on a reserve for purposes of the IA tax exemption is outlined on the CRA webpage, Information on the tax exemption under section 87 of the Indian Act. (footnote 2) It states that interest income from savings or chequing accounts and fixed-rate guaranteed investment certificates (GICs) obtained from financial institutions, including bank branches, located on reserves, are generally considered to be situated on a reserve and exempt from tax under section 87 of the IA. However, investment income generated from: bank accounts obtained from financial institutions that are located off-reserve; mutual funds; and most securities listed on a designated stock exchange is generally not considered to be situated on a reserve and would not qualify for the tax exemption under section 87 of the IA.

Depending on the type of investments held in the First Nations individual’s FHSA, investment earnings on their FHSA contributions may or may not be situated on a reserve. Therefore, where the amounts withdrawn from their FHSA are not qualifying withdrawals, it is a question of fact whether the portion representing investment earnings are taxable or tax-exempt.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

We trust these comments will be of assistance to you.

Yours truly,

Ms. Nerill Thomas-Wilkinson, CPA, CA

Manager
Non-Profit Organizations and Indigenous Issues Section
Specialty Tax Division

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. See Registered retirement savings plan (RRSP) income at Information on the tax exemption under section 87 of the Indian Act - Canada.ca

2. https://www.canada.ca/en/revenue-agency/services/indigenous-peoples/information-indians.html#hdng9