Investment Account Tax Comparison

A TFSA grows and pays out tax-free, while an RRSP contribution is deducted at your rate today but the whole balance is taxed as ordinary income on withdrawal. When your tax rate is the same at contribution and withdrawal the two work out equivalent on a pre-tax basis; the RRSP comes out ahead when your marginal rate in retirement is lower than when you contributed, and the TFSA wins when your retirement rate is higher. See the TFSA calculator and RRSP calculator for account-specific projections.

It depends on the type of income. Capital gains only include 50% of the gain in taxable income, interest income is fully taxable at your marginal rate, and eligible Canadian dividends receive a gross-up and dividend tax credit that lowers the effective rate below your regular marginal rate. See the capital gains calculator for the inclusion-rate math.

Eligible Canadian dividends are grossed up and then offset by a federal and provincial dividend tax credit, which approximates tax already paid at the corporate level — the net effect is a lower effective tax rate than plain interest income at the same marginal bracket. See the dividend tax calculator for the exact credit mechanics.

Not automatically — deferral only pays off if your retirement-year marginal rate is meaningfully lower than your contribution-year rate. If your rate stays roughly flat, the RRSP's tax-free compounding inside the plan can still outperform a taxable account that pays tax on growth every year, but the margin narrows compared to a TFSA.

Use your current marginal tax rate for the contribution-year field — the rate that applies to the next dollar you earn today. For the retirement rate, estimate your expected marginal rate when you plan to withdraw, based on projected retirement income; a lower expected retirement rate is what makes RRSP deferral pay off.