Saving plans RRSP, TFSA, FHSA, RESP, VRSP, RDSP

Investments generate different types of revenues, such as:

  • InterestInterest is a percentage of an amount, paid at a given frequency (for example, 2% per year). It is paid by the borrower to compensate the investor for lending them the money.
    When an investor deposits money in their account at the bank, the bank uses it for other purposes. The investor therefore lends their money to the bank, which compensates the investor by paying them interest.  
    ;
  • Capital gainsA capital gain is the difference between the selling price and the purchase price of an investment, when the difference is positive.
    For example, if you buy a share for $12 and later sell it for $20, then your capital gain is $8.
    This is the opposite of a capital loss. 
    ;
  • DividendsDividends are the portion of the earnings, after taxes, that a corporation distributes to shareholders in proportion to their holdings..

Certain types of investment revenues are more taxable than others. 

Several plans offer tax benefits that you can take advantage of. Thus, when you invest in these plans, the type of investment income earned is no longer important from a tax point of view. This is particularly the case for RRSPAn RRSP, or Registered Retirement Savings Plan, is a registered account (an account with a bank or on-line broker, for example) in which investments can be made, the returns on which are not taxable as long as the money stays in the RRSP.
Investors who make contributions to their RRSP can deduct an equivalent amount from their taxable income (subject to certain conditions) and, as a rule, pay less tax.
However, when amounts are withdrawn from an RRSP, they must be added to taxable income.
The main purpose of an RRSP is to accumulate savings for retirement.  
s, VRSPA VRSP, or Voluntary Retirement Savings Plan, is a plan offered by companies to their employees.
Participation in a VRSP is voluntary. Employees can contribute to a VRSP through automatic payroll deductions.
As with an RRSP, employee contributions are deducted from taxable income, and no taxes are payable on the income generated as long as the money stays in the VRSP.  
s and TFSAA TFSA is a “Tax-Free Savings Account.” It is a savings vehicle (like an RRSP) that allows deposited funds to grow tax-free. This money can be invested in shares, bonds, guaranteed investment certificates or other types of savings or investments.
Making contributions to a TFSA will not entitle you to any tax deductions. However, when you withdraw the money from the TFSA, you will not pay any taxes.
A TFSA lets you save for any reason you choose (buying a home, car, etc.). 
s. Each of these plans offer benefits. Take the time to choose the ones that suit you.

Insight

Before investing, take a moment to find about the various products you can use to build your portfolio, such as GICA guaranteed investment certificate (GIC), also called a certificate of deposit or term deposit, is a security indicating that an investor has lent money to a financial institution. GICs earn interest. s, sharesA share, also referred to as stock, is an equity security that entitles you to an ownership interest in a company.
The company can distribute a portion of its earnings to shareholders by paying them a dividend.
The shares of companies listed on an exchange are bought and sold at the exchange.
When a company ceases to operate, the proceeds from the sale of its assets are used to pay its debts and taxes, and the rest of the money is distributed to shareholders.
, mutual fundsA mutual fund is made up of money that is pooled by several investors and used on their behalf by a manager to buy shares, bonds or other securities in line with the fund’s objectives. , etc.

End of the insight

RRSP

A Registered Retirement Savings Plan (RRSP) allows you to invest and save money tax-free, usually for retirement.

In general:

  • Putting money in (contributing to) an RRSP lowers your income tax.
  • Your investment grows tax-free.
  • You pay income taxes on amounts withdrawn from your RRSP.

Learn more about RRSPs

TFSA

A Tax-Free Savings Account (TFSA) allows you to grow your investment tax-free.

In general:

  • Putting money in (contributing to) a TFSA does NOT lower your income tax;
  • Your investment grows tax-free;
  • You do NOT pay income taxes on the amounts you withdraw from your TFSA.

Learn more about TFSAs

Tax-Free First Home Savings Account (FHSA)

The 2022 federal budget proposes to create a “Tax-Free First Home Savings Account” (FHSA). Here are the proposed features of this new account.

RESP

A Registered Education Savings Plan (RESP) will help you save, receive incentives and invest for a child’s education.

In general:

  • Putting money in (contributing to) an RESP does NOT lower your income tax;
  • You receive incentives (the government adds money to your RESP);
  • Your investment and government incentives grow tax-free;
  • You do NOT pay income taxes when you withdraw amounts deposited in an RESP;
  • Students pay income taxes when they withdraw the investment income and incentives.

Learn more about RESPs

VRSP

A Voluntary Registered Savings Plan (VRSP) allows you to save and invest for retirement through payroll deductions. If a VRSP is offered by your employer (only some employers do), you are NOT required to participate in the plan.

In general:

  • Payroll deductions lower your income tax;
  • Amounts invested grow tax-free;
  • You pay income taxes on the amounts that you withdraw from your VRSP.

Learn more about VRSPs

RDSP

A Registered Disability Savings Plan (RDSP) is designed to ensure the long-term financial security of a person with disabilities.

In general:

  • Putting money into (contributing to) an RDSP does NOT reduce your income tax;
  • The government provides money (assistance) to the RDSP;
  • Your investment and the government assistance grow tax-free;
  • You do NOT pay income taxes when you withdraw amounts deposited in an RDSP;
  • Persons with disabilities pay income taxes when they withdraw the investment income and government assistance.

Learn more about RDSPs