TSFA vs RRSP vs FHSA: How Should I Save as a Canadian

By Remitbee - Jan 22, 2024

Tax-Advantaged Savings Plans

According to Investopedia, the textbook definition of Tax-advantaged is any investment, financial account, or savings plan that is either exempt from taxation, tax-deferred, or offers other types of tax benefits.

Thus, tax-advantaged savings allow investors to shield their investments from taxation, minimizing their tax burdens.

Tax-advantaged savings plans allow tax deductions in one of two ways:

  • Tax-Deferred Accounts: where tax deductions are realized immediately on your contributions towards a savings plan, but future withdrawals are taxed. An example is the Registered Retirement Savings Plan (RRSP).

  • Tax-Exempt Accounts: where your savings are not subjected to taxes on withdrawal since contributions of this type are made with after-tax dollars. A Canadian example is the Tax-Free Savings Account (TFSA).

Tax-Advantaged Savings Instruments for Canadians

Canadians have access to three tax-advantaged savings plans with their advantages and caveats. These include:

  • Tax-Free Savings Account (TFSA)
  • Registered Retirement Savings Plan (RRSP)
  • Tax-Free First Home Savings Account (FHSA)

The article will delve into each of these plans and try to determine the ideal instrument for your situation and needs.

Registered Retirement Savings Plan (RRSP)

The RRSP is a Tax-deferred savings plan that allows Canadians to save up for retirement. This means RRSP contributions are tax deductible and don't count toward your tax obligations. Any income earned through the RRSP is usually exempt from tax as long as the funds remain within the plan. The caveat is that you pay taxes on the withdrawn amount.

Contribution Limits for RRSPs in 2024: The annual limit for contributions to an RRSP in 2024 is $31,560. However, this is not a hard limit; investors can contribute more, albeit with additional penalties.

Age Limit for Withdrawal from an RRSP: An RRSP account holder may withdraw his savings at any age. The sum then becomes taxable income for that given year. However, once the RRSP account holder turns 71, their RRSP balance must be liquidated or shifted to a Registered Retirement Income Fund (RRIF) or an annuity contract with an insurer.

Tax-Free Savings Account (TFSA)

The TFSA is a Tax-exempt savings plan that allows Canadians over 18 with a valid Social Insurance Number (SIN) to save money tax-free. The savings don't have to be for a specific purpose, and contributions as well as income earned through this plan are usually tax-free, along with withdrawals. A TFSA can hold Mutual funds, securities, bonds, and cash investments.

Contribution Limits for TFSAs: The contribution room or limit for TFSAs for 2024 is $7,000. Any unused contribution room is carried over to subsequent years, allowing you to contribute more. Contributions over the limit incur a tax penalty of 1% per month on the excess contribution until it is withdrawn.

Advantages of the RRSP and TFSA

While the RRSP and TFSAs allow you to save and invest, they differ in tax benefits and when they kick in. An individual looking for instant tax deductibles may favor the RRSP, while a TFSA is a valuable tool for investors looking to invest after-tax dollars. To reiterate, the advantages of each are as follows:

  • Contributions to an RRSP have the advantage of being tax-deductible, meaning that they don't increase your tax obligations. In contrast, contributions to a TFSA are not tax-deductible.
  • Withdrawals from an RRSP are taxed as income, while withdrawals from a TFSA are not taxed.

First Home Savings Account (FHSA)

The FHSA is a tax-free savings plan for first-time homebuyers in Canada to save up to buy or build a qualifying first home. Contributors must be between 18 and 71 years old and a resident of Canada, along with a first-time homebuyer.

Are FHSA contributions tax deductible? FHSA contributions are deductible on income tax and benefit returns for a financial year.

Contribution limits to FHSAs: The participation room or limit for opening an FHSA is $8,000 for the first year. Any unused participation room from the first year is carried over to the next year, along with a new $8,000 participation room. The lifetime FHSA limit is $40,000. Exceeding the participation room or limit will make you liable to taxes to the tune of 1% on the highest excess amount incurred for that month.

Advantages of the FHSA

An FHSA allows first-time homebuyers to claim income tax deductions. Additionally, it benefits from holding different types of investments, including cash, Guaranteed Investment Certificates, GICs, and Mutual Funds.


Tax-deductible savings in Canada primarily revolve around contributions to the RRSP and TFSA, which are legitimate ways to minimize tax obligations. Other options, such as FHSA, cater to a specific crowd - new homebuyers in this regard. Picking the right plan involves an understanding of your circumstances as well as guidance from financial advisors or tax professionals to optimize the benefits of these tax-advantaged savings strategies.