Investment Accounts for Newcomers to Canada

Disclaimer: This article is strongly opinionated based on personal research and experience. I am not a certified professional who can provide financial advice. Please do your own research and due diligence as your mileage may vary. I am not affiliated with any financial institutions. Any referral links I share here are generally available to all clients of the service provider.

TFSA, RRSP, FHSA… you’ve probably been seeing these acronyms for the various registered account in Canada. In this post, I’ll tell you what I know about these accounts, so you can decide which one you should open first.

But first, as a newcomer you should understand the progressive tax system in Canada. Some high income earners say “I pay 40% of my income as taxes” which is not exactly true - You only pay the 40% for your next dollar earned after reaching a certain income bracket.

Watch the video from this YouTuber for a good explanation with examples:

(TaxTips.ca has a nice tax rates & tax brackets table)

You should also note that, beside your employment income, bank interests, dividends and capital gains are all taxed differently.

Once you understand how taxes work, the question become: how can you legally minimize or pay no investment taxes with all the various registered accounts? The following order would be a good start.

Tax-Free Savings Account (TFSA)

There is a common misunderstanding that, because of the word “Savings”, a TFSA is meant to be just for saving cash to earn bank interest. What’s worse is to treat it as a “bank account” and move money in and out regularly.

The truth is, TFSA allows you to put after-tax money in for investing, and all your gains are completely tax free. You could turn $10,000 into a million and pay absolutely zero taxes! 💰

What’s best for newcomers is you can open TFSA right after you become a tax resident of Canada, i.e. when you get your Social Insurance Number (SIN) from Service Canada. However, as most YouTube videos won’t mention, you only start accumulating TFSA contribution room on the year you become a tax resident, not from 2009 or the year you turn 18! So if you moved to Canada in 2025 when you’re 30, in 2026 you’ll only have $7000 (2025) + $7000 (2026) = $14,000 of total room.

TFSA gives you the flexibility to withdraw money any time (by selling your investments), but note that you’ll only gain back the room in January of the following year. This is very important and is often a rookie mistake that result in penalties from CRA.

Example: In January 2025, you put $7,000 into TFSA (maximum allowed for 2025). You had an emergency in June and had to withdraw $2,000. If you put the $2,000 back in July, you would be treated as having contributed $7,000 (Jan) + $2,000 (Jul) = $9,000 ! CRA will tax you 1% for the extra $2,000 every month until you withdraw it back down. Therefore, you must wait until January 2026 to put back the $2,000.

Registered Retirement Savings Plan (RRSP)

You can only open a RRSP account after filing your first year’s income tax and receiving your notice of assessment, which tells you how much contribution room you have.

In a nutshell, RRSP allows you to reduce your taxable income during high earning years, and only withdrawing the fund when your retire and have lower income, essentially deferring the taxes. There are lots of YouTube videos on RRSP so I will not elaborate further here.

Whether to start using a RRSP often depends on your income level, but it’s generally advisable once you’re above the 30% tax bracket (~$60K). Using a $100,000 gross income example in Quebec, you can see that even though your take-home pay reduced, your total wealth still increased because of RRSP (numbers are approximate and not accurate calculation):

If your company offers a Group RRSP with employer matching, you should always take it as it’s essentially free money from your employer. 🤑 But note that the employer matching also count towards your contribution room, so you should watch out and don’t over contribute.

A question new immigrants usually have:

What if I don’t retire in Canada? But this is a ‘retirement’ plan!

Well, the good news is RRSP is not a locked-in pension plan. The money is always yours to withdraw, even before retirement age, you just have to pay taxes for the withdrawn amount, treating them as your “earned income” (salary). You can always wait until you become a non-resident (NR) and withdraw it with a lower tax rate than when you were at > 40% marginal tax rate. A professional financial planner will be able to work out the withdrawal strategy for you.

Using RRSP for Home Purchase 🏠

If you’re buying your first home, you can withdraw up to $60,000 from RRSP tax-free, and pay them back interest-free over 15 years! Refer to the Home Buyers’ Plan website for more information.

First Home Savings Account (FHSA)

Note: I’ve never owned an FHSA since it was only introduced after I bought my first home, so I’m not writing this with first-hand experience.

The FHSA, introduced in 2023, allows you to combine the “best of both worlds” of RRSP and TFSA:

• Contributions are tax-deductible (like RRSP)
• Qualifying withdrawals are tax-free (like TFSA)

If you plan to buy a home in Canada, it’s a no-brainer to open an FHSA. It can stay open for up to 15 years, and even if you don’t end up buying a home, you can still transfer it to your RRSP.

Registered Education Savings Plan (RESP)

If you have children, you should definitely take advantage of RESP to save for their education. For each child, there’s a maximum lifetime contribution limit of $50,000.

Each year, the government will match your contribution with incentives:

• Canada Education Savings Grant (CESG) - 20% match, up to $500
• Quebec Education Savings Incentive (QESI) - 10% match, up to $250 (QC resident only)

Therefore, if you contribute at least $2,500 each year to the RESP, you'll receive the maximum incentive ($500 + $250 = $750) allowed for the year (free money! 💵).

Your contribution plus the grant money can be invested and grow tax-deferred. When you finally withdraw from the RESP for your child’s tertiary education, it’ll be taxed under their income level, which should be minimal to none.

Non-Registered Account

Once you’ve maxed out contribution to all the registered accounts above, and still have extra savings to invest, then you can use a non-registered (taxable) account. As you can expect, interests, dividends and capital gains in non-registered account are taxable, so this is usually the last one in your list to use.

Note on Capital Gains and Losses

As the time of writing this (April 2026), first $250,000 of capital gains are subject to 50% inclusion rate. So if you realized a $10,000 capital gain, only $5,000 is included in your taxable income, and you don't pay taxes for the other $5,000. This makes capital gain taxes the “best” type of taxes to pay. Furthermore, if you incurred capital losses, you can use it to offset capital gains from the past 3 years, or carry it forward indefinitely to offset future capital gains.

However, capital losses realized in registered accounts are lost forever. So if you buy high risk assets in a TFSA or RRSP and lose all your money, you don’t get to claim the losses or gain back any contribution room. Therefore, it’s better to make those high risk trades in a non-registered account.

Referral Code

If you’re ready to invest, and would like to open an account, please feel free to use my referral links or codes:

• Wealthsimple - Referral code SVRETW
• Questrade - Referral code 376129710438386