Yes, both TFSAs and RRSPs let you shelter investment income from tax, but they work very differently. A TFSA grows tax-free forever and withdrawals are never taxed, while an RRSP defers taxes until withdrawal, at which point all growth and income are taxed as regular income. The best choice depends on your current tax bracket, retirement timeline, and investment goals. When you earn investment income (interest, dividends, or capital gains) inside a TFSA, you pay no tax on that growth, and you can withdraw it anytime without any tax hit. This makes TFSAs powerful for long-term investors who want genuine tax-free wealth building. RRSPs work the opposite way. You get an immediate tax deduction when you contribute, which reduces your taxable income in that year. But when you eventually withdraw, everything (your original contribution plus all the growth) is taxed as regular income. This CRA rule may apply to you if you expect to be in a lower tax bracket in retirement.
Investment income grows tax-free in both accounts while held, but the tax treatment on withdrawal is different. TFSA withdrawals are never taxed. RRSP withdrawals are fully taxed as regular income. This makes TFSAs truly tax-free while RRSPs are tax-deferred.
No. You get a deduction for the amount you contribute to an RRSP, not for gains or losses. If your RRSP investments drop in value, you can't claim a loss deduction. However, capital losses outside registered accounts can be used to offset capital gains.
No. Income earned inside a TFSA (interest, dividends, capital gains) is never reported on your tax return. The CRA does not tax TFSA growth at any point, making it completely separate from your taxable income.
Early RRSP withdrawals are fully taxed as regular income in the year you withdraw. The withdrawal amount is also removed from your contribution room permanently. Many people use the Home Buyers' Plan to withdraw up to $35,000 tax-free for a first home purchase (which must be repaid).
If your employer offers RRSP matching, prioritize getting the match first (it's instant free money). Then max out your TFSA. After that, contribute more to your RRSP if you're in a high tax bracket, or continue with TFSA contributions if you expect similar or higher retirement income.