Tax Tips

RRSP vs. TFSA

If you’re like most Canadians, you’ve probably got a few questions about RRSPs and TFSA’s. 

• Is one better than the other? 
• Are they even worth investing in? 
• How do they work?

In this guide, we’ll answer those questions and more. We’ll also help you decide which one is right for your situation—and show you how to make sure your money is invested wisely!

Registered Retirement Savings Plan (RRSP)

RRSPs are a great idea for most taxpayers but especially for high-income earners. 

Contributions to an RRSP will lower your taxable income and thus directly reduce your taxes payable. 

In Canada, as your income increases, tax rates increase like a step ladder. Therefore, high-income earners receive a greater RRSP discount or refund from their RRSP contributions.

To put this into context, we’ve provided 2 income situations in Canada:

	Income # 1	Income # 2
Income	$150,000	$50,000
RRSP Contribution	$10,000	$10,000
Savings (After Tax)	$4,500	$2,000

The table shows that if you earn over $150K in Canada, a $10K RRSP contribution will save you at least $4,500. However, the same $10K RRSP contribution for someone making $50K will only save them approximately $2,000.

You can generally contribute up to 18% of your previous year’s earned income, up to an annual maximum ($29,210 for 2022) plus any unused RRSP room from prior years. An investment in a plan can grow tax-free until you withdraw the funds. 

As the funds are geared toward providing retirement income, the key is to withdraw the funds in retirement when your income — and therefore your tax rate — is potentially lower.

Consider investing in RRSP when your income is above $100K to get the maximum refund from your investment.

Tax-Free Savings Account (TFSA)

TFSA’s are a great idea for all Canadians but they do not provide you any immediate tax relief. 

Contributions are made with after-tax dollars and no tax is applicable when amounts are withdrawn, meaning that investments can grow tax-free. 

TFSAs also offer some flexibility over RRSPs: Savers can access their funds (depending on their investment type) and the amounts withdrawn can be re-contributed in the following tax year.

Concentrate on increasing your TFSA balance when your income levels are low (say under $50K) as contributing to a TFSA will provide you liquidity and flexibility.  As your income increases it is better to start investing in an RRSP.

BNI Profile

Robert Monterio, Barrister & Solicitor

Robert Monterio holds the commercial lawyer seat at BNI. We’ve included a short interview so you can learn more about him and his experience with BNI.

1. What seat do you hold at BNI? And Briefly what do you do? 

Commercial lawyer. We assist clients in all aspects of starting/acquiring, operating, and selling a business.

2. How has BNI helped you grow your business?  

Greatly. Both from direct revenue as well as shaping a positive business mindset.

3. What’s the best part of being a BNI member? 
   Multi-stage referrals from past members and clients.

4. What’s a skill you learned from BNI that has helped you?  

The value of reciprocity. The Givers Gain mentality!

Quote of the Month

“Life is really simple, but we insist on making it complicated.” 

– Confucius