A TFSA and RRSP accounts are two different types of savings account that the Canadian government offers to its citizens, to allow them to save for various needs and requirements throughout their lifetime. However, these two accounts vary from each other in terms of limit, tax deductibility and withdrawals. While the RRSP is an old provision, first introduced in the year 1957, the TFSA is quite new, having been introduced only in the year 2008. The differences between these two accounts have been illustrated in the table below:
TFSA | RRSP | |
Limits | As per the year 2019, the maximum amount that you can contribute within a TFSA account has been set at $6,000, irrespective of the income that an individual incurs. | The limit of contribution for an RRSP account is based on the earned income of the individual as per the previous year and can be done up to the maximum amount. As of the year 2019, the limit has been set at $26,500. Therefore, if you are to contribute into your RRSP in the year 2019, the limit would be $26,500 minus your pension adjustment/ the amount that has been indicated as per your Notice of Assessment for the year 2018. |
Tax Deductibility | The contributions that you make to a TFSA account are not tax deductible. Therefore, your taxable income is not reduced owing to the contributions that you make into this account. Furthermore, the returns or incomes that you earn for your investments are also exempt from tax. | The contributions that you make into a RRSP account are tax deductible. Therefore, your taxable income is reduced through these contributions. Any income or return that you might have earned for your investments are sheltered from tax, until you withdraw them from your RRSP account. |
Withdrawals | Any withdrawal that you make from a TFSA account does not get added to the taxable income that you might have, thereby making them tax-free. Moreover, you can re-contribute any withdrawals that you might have made in the consecutive years. | Any withdrawal that you make from a RRSP account is added to your taxable income and the tax is levied as per the applicable rates of marginal tax. You cannot re-contribute your withdrawals in the consecutive years for this type of account. |