Canadian Tax Season 2026: TFSA vs RRSP Strategies You Need to Know
With tax season approaching in Canada (NETFILE reopens February 23, 2026), the age-old question resurfaces: TFSA or RRSP? The answer isn’t one-size-fits-all, and recent changes make this year’s decision more nuanced.
The Basics
TFSA (Tax-Free Savings Account)
- Contributions aren’t tax-deductible
- Growth is completely tax-free
- Withdrawals are tax-free
- Doesn’t affect government benefits like CPP or OAS
RRSP (Registered Retirement Savings Plan)
- Contributions are tax-deductible
- Growth is tax-deferred
- Withdrawals are taxed as income
- Affects income-tested benefits
Current Interest Rate Environment
The Bank of Canada held its policy rate at 2.25% as of February 2026. This is significantly lower than the 5%+ rates we saw in 2023-2024, which changes the calculus on certain strategies.
With rates falling, the benefit of RRSP’s tax deduction becomes relatively less valuable compared to TFSA’s tax-free growth. However, high-income earners still benefit significantly from RRSP deductions.
Key Strategies for 2026
1. The “Spousal RRSP” Play
Contributing to a spousal RRSP can split income for couples, reducing overall household taxes. With Canada’s progressive tax brackets, this strategy becomes powerful when one partner earns significantly more.
2. First-Time Home Buyer Considerations
RRSP withdrawals under the Home Buyers’ Plan remain tax-free if repaid within 15 years. For those looking to buy in 2026-2027, maximizing RRSP contributions before purchasing can serve double duty—tax deduction plus down payment source.
3. The TFSA Overflow Strategy
If you’ve maxed out your RRSP room and have additional savings, TFSA becomes the obvious choice. For 2026, the TFSA contribution limit remains at $7,000 (or cumulative $102,000 for those who’ve been eligible since 2009).
4. The Average TFSA Balance
According to recent data from The Motley Fool, Canadians aged 55 with well-funded TFSAs are finding significant value in the tax-free withdrawals—especially since TFSA distributions don’t trigger taxes or affect OAS eligibility.
My Take
For most Canadians earning under $75,000 annually, TFSA should come first. The flexibility—the ability to withdraw anytime, tax-free, without affecting government benefits—outweighs the RRSP deduction benefit.
For high earners (>$100,000), the RRSP makes more sense. The tax deduction at your marginal rate, combined with future lower-tax retirement income, creates meaningful savings.
The best strategy? Do both if you can. Max out TFSA for flexibility, then contribute to RRSP for the tax reduction.
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