Tax Basics
Three of the most useful registered accounts available to Canadians — each with its own rules, tax treatment, and best use case. Here's a plain-language breakdown of each one.
A TFSA lets you save and invest money without paying tax on the growth or on withdrawals. Contributions are made with after-tax dollars, so you don't get a tax deduction going in — but everything that comes out, including investment gains, is completely tax-free. Every Canadian resident aged 18 or older accumulates contribution room each year, and any amount you withdraw is added back to your room the following calendar year. It's the most flexible of the three accounts, making it ideal for emergency savings, a house down payment, or any medium-term goal.
An RRSP is built for retirement. Contributions are tax-deductible, so they directly reduce your taxable income in the year you contribute — which is especially valuable if you're in a higher tax bracket now than you expect to be in retirement. Investments inside the account grow tax-deferred, meaning you don't pay tax year to year, but withdrawals are taxed as regular income when you eventually take the money out. Contribution room is based on 18% of your previous year's earned income, up to an annual CRA maximum, and unused room carries forward indefinitely.
The FHSA is the newest of the three, designed specifically to help first-time buyers save for a home. It combines the best features of the other two accounts: contributions are tax-deductible like an RRSP, and qualifying withdrawals — money used to buy your first home — are completely tax-free like a TFSA. You can contribute up to $8,000 per year, to a lifetime maximum of $40,000, and the account can stay open for up to 15 years or until you turn 71. If you don't end up buying a home, the funds can be transferred to an RRSP or RRIF without affecting your RRSP contribution room.
| Feature | TFSA | RRSP | FHSA |
|---|---|---|---|
| Full name | Tax-Free Savings Account | Registered Retirement Savings Plan | First Home Savings Account |
| Main purpose | Flexible, tax-free saving for any goal | Long-term retirement savings | Saving for a first home |
| Contributions | Not tax-deductible | Tax-deductible (reduces taxable income) | Tax-deductible (reduces taxable income) |
| Growth while invested | Tax-free | Tax-deferred (taxed later on withdrawal) | Tax-free |
| Withdrawals | Always tax-free | Taxed as income when withdrawn | Tax-free if used for a qualifying first home purchase |
| 2025 annual contribution limit | $7,000 | 18% of prior-year earned income, up to $32,490 | $8,000 |
| Lifetime limit | No lifetime cap (room accumulates) | No lifetime cap (room accumulates) | $40,000, over a maximum of 15 years |
| Unused room | Carries forward indefinitely | Carries forward indefinitely | Carries forward, up to $8,000 in a single year |
| Withdrawn amounts | Room is added back the following year | Room is not restored (except under HBP/LLP rules) | Room is not restored once withdrawn |
| Best suited for | Emergency funds, short- and medium-term goals | Retirement income, especially in high-income years | First-time home buyers within the next 15 years |
Limits shown reflect the 2025 tax year and are subject to change by the CRA. This article is for general informational purposes only and does not constitute tax or financial advice.
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