How the rules differ
| TFSA | RRSP | |
|---|---|---|
| Income required for room? | No. Room accrues from the year of residency, from age 18. | Yes. Room starts after filing a return reporting earned income. |
| Tax on contribution | Not deductible. | Deductible, reducing taxable income. |
| Tax on withdrawal | No tax. Withdrawn room is restored the following year. | Taxed as income. Withdrawn room is permanently lost (outside specific plans). |
| Primary purpose | Flexible, any goal. | Retirement saving. |
When each starts for a newcomer
TFSA contribution room begins to accumulate in the year a person becomes a resident of Canada, provided they are 18 or older. It does not require earned income.
RRSP contribution room begins after the first Canadian tax return that reports earned income is filed. For this reason, the RRSP often becomes available later than the TFSA for newcomers.
Using both
Both accounts can be used together, and the FHSA is an additional option for a first home. The order of funding depends on income, tax position, and goals.
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When does TFSA contribution room start for a newcomer?
TFSA room begins to accumulate in the year a person becomes a resident of Canada, provided they are 18 or older. Earned income is not required.
When does RRSP contribution room start?
RRSP room begins after filing the first Canadian tax return that reports earned income.
How are TFSA and RRSP withdrawals taxed?
TFSA withdrawals are not taxed and the room is restored the following year. RRSP withdrawals are taxed as income, and the room is generally lost permanently.
Can a newcomer use both accounts?
Yes. Both can be used, along with the FHSA for a first home. The order of funding depends on income, tax position and goals.
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