How to Save Money on Taxes in Canada: TFSA & RRSP Tips.
This is inspired by Catherine, who sent a direct message last week requesting tips on how to save more money this tax season through tax deductions. I’ve also met countless others who feel overwhelmed by terms like “tax-free earnings” and “tax-deductible deposits.”
Realizing how much money is left on the table simply because these concepts aren’t explained clearly is why we are here. The goal? To help you make smarter financial decisions starting today.
This is for young professionals, immigrants, and anyone looking to improve their financial literacy.
Why This Matters to You and I
I once watched a friend toss a crumpled $100 bill into the trash because she thought it was just paper. That moment stuck with me for a long time. Too many of us young professionals grinding through paychecks or immigrants navigating new systems miss out on financial wins simply because financial lingo sometimes feels like a foreign language and we don't take time to listen well before we disregard it.
I am writing this because I believe financial literacy isn’t a luxury; it’s a lifeline. The purpose of this read is to break down terms like tax-free gains and tax-deductible deposits into bite-sized, actionable insights so you can keep more of your hard-earned cash.
You should read this because it is a financial advantage you might not be fully leveraging. This minor detail has the potential to save you thousands of dollars over time. Join me on this journey toward smarter money moves, and let’s build a financially healthy lifestyle together.
Are you leaving money on the table?
It’s 8 a.m. You’re sipping your deep roast morning coffee, scrolling your phone, and a bank alert pops up: your paycheck’s in. But then you notice something odd: your taxes seem off, your deposits are reducing your taxable income, and your earnings aren’t completely taxed. What gives? Is this magic? Nope, it’s financial strategy. The answer lies in two terms you’ve probably looked over: tax-free gains and tax-deductible deposits. If you don’t understand how these tools work or misunderstand them, you may have been quietly losing thousands over time. Understand them today, and you stand a chance to pocket cash you didn’t even know was yours.
Here’s why you need this: A 2023 Financial Consumer Agency of Canada survey found that 53% of Canadians struggle with understanding basic financial concepts. That’s over half of us missing out on savings because terms like these feel like a puzzle and not your everyday life. Whether you’re a 20-something hustling your first job, an immigrant decoding Canada’s tax system, or someone tired of watching money slip away, this is your wake-up call. Stick with me because it’s simpler than you think.
Know the Difference Between Tax-Free Earnings and Tax-Deductible Deposits
Your Secret Money Multiplier, what does it mean to have "tax-free earnings?
Imagine planting an apple seed that grows into a tree, and every apple it bears is yours; no one can take a bite. That’s tax-free gains. In Canada, it’s money you earn that the government doesn’t touch and you don’t pay taxes on ever. Here’s how it works:
Tax-Free Savings Account (TFSA): This is an account where you can put in $5,000, watch it grow to $10,000 through investments, and withdraw it all tax-free. Meaning, you keep the entire amount tax-free. In 2025, the annual TFSA limit is $7,000, with a lifetime cap of $102,000 if you’ve never contributed since 2009 (and were 18+ then).
Canada Child Benefit (CCB): These are government monthly cash payments for parents. And yeah, it is tax-free.
Gifts and Inheritances: Money received as a gift or inheritance isn’t taxed. That $1,000 from Grandma or win a lottery from OLG? You guessed it right! It is all yours, no strings attached. More information is available here.
Meet Ada and Yoshi, both 30, each saving $10,000 annually. However, Ada invests hers and uses it to max out her TFSA for tax-free growth, and Yoshi doesn’t care much about hers, so she puts it in a regular savings account.
After 10 years at 5% returns, Ada’s money has appreciated to $125,778.93 untaxed (she keeps the full $125,778.93). Yoshi’s taxable account? After 10 years, Yoshi’s money with a 0.90% savings interest rate appreciates to $104,415.16, and after-tax, her growth would be $103,532.13.
The value difference between Ada’a and Yoshi’s accounts after 10 years is approximately $22,246.80. Ada’s up $25,778.93 because she got it all planned out. The real question now is, are you Ada or Yoshi?
Why It Matters:
No tax penalties on withdrawals.
If you earn $1,000 in a TFSA and your tax bracket is 23%, you keep all $1,000, not $800 like with taxable income. Over 20 years, that difference when invested properly could appreciate significantly.
It’s perfect for long-term growth or quick cash withdrawals without a tax hit or penalties.
Tax-Deductible Deposits: Your Tax Bill Shrinker
Now imagine handing the taxman a coupon: “Hello there, take less from me today.” That’s tax-deductible deposits - money you put into certain accounts that lower your taxable income, and as a result, you pay less in taxes; therefore, you can consider these as possible tax bill discounts. Examples:
Registered Retirement Savings Plan (RRSP): Contributing to an RRSP lowers your taxable income. In 2025, you can contribute up to $32,490 (or 18% of your 2024 income, whichever’s less). If you earn $60,000, you would usually get taxed at a federal income tax bracket of 20.5%, but if you stash $5,000 in an RRSP, you’re taxed on $55,000 instead. This brings you down to the 15% tax bracket, ultimately reducing your tax bracket and saving you $4,050 at a 15% tax rate. That’s money you can reinvest or use to pay down debt. However, you’ll pay taxes when you withdraw the money later in retirement at a lower tax bracket.
Childcare Costs: You can deduct daycare, babysitting, or day camp payments from your taxable income.
Professional or Union Dues: Paid $500 to your union, or do you belong to any professional body that requires you to pay a monthly fee? That’s deductible too.
Why It Matters:
Lowers your current tax bill.
You save taxes now, especially if you’re in a high bracket.
Great for retirement savings: Later, when you withdraw (say, in retirement), you’re likely taxed less due to being in a low tax bracket. At the end of the day, it’s a now-and-then win.
Which One Should You Use?
If you want to grow money tax-free forever → Choose tax-free earnings (TFSA).
If you want a tax break today → Choose tax-deductible deposits (RRSP).
If you can, use both! One helps you now, and the other helps you later.
Which one’s for you?
Want cash that grows tax-free forever? TFSA’s your move.
Want a tax break now? RRSP’s got you.
Why not both? Use TFSA for flexibility and RRSP for retirement. One helps you now, and the other helps you later. In 2025, Canada’s average tax refund is projected at $1,900 reinvest that, and you’re good.
Your 3-Step Application and Action Plan
Max out Your TFSA: If you haven’t already, open one today. Contribute $7,000 in 2025 or more if you’ve got room.
Leverage RRSPs: Shave your tax bill and save for later. Check your limit on your CRA account and consider the importance of reinvesting any tax refunds you get into your RRSP or TFSA. Make the most of your tax-advantaged choices.
Claim Everything Claimable: Track your tax-deductible expenses, childcare, dues, and anything legally deductible. File it right on your taxes and maximize your savings.
Knowledge Is Profit
Ada and Yoshi saved the same amount, but Ada ended up with more. Ada didn’t outsmart Yoshi with a finance degree; she just understood the rules and applied them correctly. You don’t need to be an accountant or financial advisor to prepare yourself. Next time you see your pay stub or CRA statement, you’ll spot the $$ bill others miss. This isn’t just info; it’s leverage.
What’s Next?
Now that you know the difference, it’s time to act. Review your accounts, open a TFSA or RRSP if you haven’t already, and start maximizing your savings.
Don’t let ignorance cost you thousands. By leveraging tax-free earnings and tax-deductible deposits, you can keep more of your money, reduce your tax burden, and make smarter financial decisions.
Until next week,
XO, Your FI Cheerleader
Comments
Post a Comment