Simplified Summary:

Neither RRSP's nor TFSA's are investments themselves, but rather tools to hold investments for specific tax planning strategies. Investments held within RRSP's will reduce your taxes in the year they are contributed and claimed, while you will have to pay tax on the investment when you take it out. All earnings within the RRSP grow tax free, but are taxed when they are withdrawn. Investments held within a TFSA do not give you any initial tax savings, however, ALL the growth within this account (along with the initial contribution) can be pulled out completely tax free at any time.


One of the only things you can do after December 31st to affect your prior years' tax return is contribute to RRSPs (Registered Retirement Savings Plan). But how does someone know if they should contribute to their RRSP? When is it beneficial and when is it better to invest somewhere else? What is the difference between RRSP's and the TFSA (Tax Free Savings Account)? By knowing a few of these basic concepts, as well as when and how to utilize them properly, you can both save yourself thousands of dollars in taxes as well as prevent unwanted penalties from CRA (Canada Revenue Agency).

Think of both RRSP's and TFSA's as 2 separate umbrellas. Neither one is an investment by itself, but rather an umbrella that you put OVER TOP of whatever qualifying investment you choose to protect it from something.

An RRSP umbrella defers taxes owing on the initial contribution and all growth within this account. Once the money is withdrawn from the RRSP umbrella, the taxpayer pays tax on both the initial invested money as well as any growth along the way.

A TFSA can hold similar savings and investments as an RRSP (including cash, GIC's, stocks, bonds, mutual funds, and ETFs). Although you don't get any initial tax savings on your tax return, the TFSA umbrella guarantees that all the earnings generated within this account (interest, dividends and Capital gains) will never be subject to Canadian tax when they are withdrawn.

How do I choose which umbrella to use?

There are many factors that can go into deciding which investment umbrella is right for you. Your financial advisor or accountant can best help you determine this based on your individual situation.

The RRSP umbrella will save you tax based on the tax bracket you are in, so the higher your income the more you may save. This is a great tool to use for Retirement Savings, and saving up for a future home.

If you have children an RRSP can also help to increase the Canada Child Benefit (the monthly payment you receive for your children) by as much as 23%!

The Deadline for contributing to your RRSP this year is March 1, 2023. Any contributions between Jan 1 - March 1st 2023 must be reported on your 2022 tax return and can help to reduce the taxes you owe (or increase your refund) when you file.

The TFSA umbrella can be used either for long term savings and investments or short term savings, as the investments can be withdrawn at any time. However, be careful about moving investments in and out of this umbrella, as CRA can penalize you if you exceed the allowable limit per year. The TFSA room available for 2023 is $6,500. If you have never contributed to a TFSA, and have been a Canadian resident over the age of 18 since 2009, you can contribute up to the maximum limit of $88,000.

Always make sure you know how much contribution room you have available for either of these umbrellas as CRA can penalize you quite heavily if you contribute over your limit. Knowing the tax treatment of each of these tools can significantly increase your wealth, reduce your taxes (both now and in the future), as well as increase your child benefit payments next year!

Come visit the friendly TaxTeam staff at 339 Main Street N Moose Jaw to find out more and get your free RRSP check to see how YOU can SAVE MORE TAX!

February 12, 2021 | Mike Biette