A newcomer’s guide to investment accounts in Canada
Brooke Thio, Content Specialist
If you’re ready to grow your wealth and plan for your future in Canada, you’ll want to get familiar with investment accounts. Investment accounts offer unique benefits and tax advantages to help you accelerate toward your financial goals — whether it’s to buy your first home, pay for your children’s education, or plan for your retirement.
Let’s take a look at the different types of investment accounts in Canada and how you can make the best use of each.
Registered investment accounts in Canada
There are four main accounts that you can use for investing in Canada:
- Tax free savings account (TFSA)
- First home savings account (FHSA)
- Registered retirement savings plan (RRSP)
- Registered education savings plan (RESP)
These accounts are known as registered accounts, which are accounts given a tax-deferred or tax-sheltered status by the government. By using these accounts, you can save on taxes. While their official names include “savings account” or “savings plan”, these accounts aren’t meant for simple savings: if you put money into them, you won’t automatically earn any interest.
Instead, any contributed funds can be allocated to high-interest savings accounts (HISAs), guaranteed investment certificates (GICs), funds, stocks, bonds, or other types of investments. In general, any earnings from what you’ve contributed will not be subject to tax as long as the funds remain in the registered account.
It’s also important to note that you can open more than one of any of these registered accounts. For example, you can open an RRSP with your bank as well as a group RRSP administered by your employer. However, you are responsible for making sure you don’t exceed the contribution limits for all your accounts.
| Who can open? | Canadian resident with a valid SIN At least 18 years of age |
Canadian resident with a valid SIN At least 18 years of age, and at most 71 years of age as of December 31 |
Canadian resident with a valid SIN At most 71 years of age as of December 31 Have earned income and filed a tax return in Canada |
Anyone with a valid SIN can subscribe Beneficiaries must be residents of Canada with a valid SIN |
|---|---|---|---|---|
| Maximum contribution | Varies with each year you are eligible to accumulate contribution room (calculate yours) | $40,000 lifetime limit; $8,000 per year | 18% of earned income from the previous year or the annual limit set by the CRA, whichever is lesser (calculate yours) | $50,000 lifetime limit, including government grants |
| Withdrawal rules | Withdrawals are not taxed Contribution room is regained on Jan 1 the next year |
Qualifying withdrawals for first home purchase are not taxed Contribution room is lost |
Withdrawals are taxed, unless used for the Home Buyers’ Plan (HBP) or the Lifelong Learning Plan (LLP) Contribution room is lost |
Withdrawals for post-secondary education expenses are taxed Refunds of contributions are not taxed Gains may be withdrawn under specific conditions, and are taxed |
| Account | TFSA | FHSA | RRSP | RESP |
Tax-Free Savings Account (TFSA)
As the name suggests, a tax-free savings account allows you to grow your savings in the account without paying taxes. TFSAs have an annual contribution room starting from when they were introduced in 2009, and contribution room accumulates from the year you become a resident of Canada.
You can hold various types of investments in a TFSA — read our guide for more details. The best part of a TFSA is that you can also withdraw your funds anytime without a tax penalty. The only downside is that you won’t regain your contribution room until January 1 of the next year.
Read more: How to open a TFSA
First Home Savings Account (FHSA)
Like a TFSA, the first home savings account allows you to contribute and invest up to $40,000 ($8,000 per year, with excess contribution room carried forward each year). Another benefit of the FHSA is that your contributions are tax-deductible, so if you’re planning to buy your first home in Canada, a FHSA can help you get to your goal more quickly.
The funds in an FHSA can be withdrawn tax-free for the purchase of your first home, and you have up to 15 years to use the account. If you don’t use the funds to buy a home, they can be withdrawn as taxable income or transferred to an RRSP.
Read more: Where to open a First Home Savings Account
Registered Retirement Savings Plan (RRSP)
Designed for long-term retirement planning, the registered retirement savings plan allows you to contribute up to 18% of your earned income or an annual limit set by the CRA. The limit for 2024, for instance, is $30,780.
The tax rules for RRSPs are opposite to that for TFSAs: Any contributions are immediately tax-deductible, but withdrawals are taxed as income except in certain cases.
By the end of the year you turn 71 years old, you can no longer contribute and all RRSPs you hold must be converted into registered retirement income funds (RRIFs), which will disburse to you a yearly minimum amount (or more if you choose).
Registered Education Savings Plan (RESP)
A registered education savings plan you can use to help save for your children’s post-secondary education. While contributions to an RESP are not tax-deductible, RESPs allow your child to receive government grants as well as invest your contributions for tax-sheltered growth.
When funds are withdrawn from an RESP for post-secondary education expenses, these are considered educational assistance payments (EAPs) to your child. While EAPs are taxable, they’re taxed according to your child’s (or other beneficiary’s) income, which means the tax paid will be lower.
Non-registered investment accounts in Canada
As a newcomer, you’re also free to open or maintain investment accounts that aren’t tax-advantaged in Canada. This could include accounts with robo-advisors or online brokerages, and are ideal if you’ve maximized your contributions in registered accounts.
That said, any income generated from non-registered accounts is taxable. This includes interest income, dividends, and realized capital gains (each of these are subject to different tax treatments). If you already hold non-registered investment accounts when you become a resident of Canada, you must declare any income when filing your taxes in Canada to avoid committing tax evasion.
The bottom line
As a newcomer to Canada, you have a wealth of options for investing your money and being financially prepared for the future. Before you start, though, make sure to complete the essentials like establishing your credit history and getting appropriate insurance coverage for yourself.