TFSA, RRSP or FHSA: How to Choose

The tax differences between the three accounts, and which suits whom to contribute to first

Scott Tang, CPAUpdated 2026-11-052026 rules5 min read

The TFSA, RRSP and FHSA can all save you tax, but they work in different ways: an RRSP gives you a deduction now, and you pay tax when you take the money out; a TFSA gives no deduction when you put money in, and no tax when you take it out; an FHSA is tax-free at both ends, but only for buying a first home. You can use all three together. The only question is which to fund first when you don't have much to put in.

$7,000

New TFSA room for 2026; $109,000 in total if you've been eligible every year since 2009

$33,810

2026 RRSP annual limit (or 18% of the previous year's earned income, if lower); this isn't the same as your actual room

$8,000

FHSA annual limit; $40,000 over your lifetime

March 1, 2027

Deadline for 2026 RRSP contributions

The three accounts in one table

Item	TFSA	RRSP	FHSA (first home)Recommended
Putting money in	No deduction	Can be deducted from that year's income	Can be deducted from that year's income
Income earned inside	Tax-free	Not taxed for now	Tax-free
Taking money out	Tax-free; the room comes back the next year	Taxed as ordinary income	Tax-free for buying a first home
Where the room comes from	Builds up each year from age 18 while you're a Canadian resident	The previous year's earned income as defined, minus any pension adjustment	Only starts building from the year you open the account
Unused room	Keeps building up	Keeps building up	Up to $8,000 carries forward to the next year

When money is limited, which comes first

Buying a first home within a few years

Open an FHSA first

Deduction + tax-free withdrawal

Then consider the RRSP Home Buyers' Plan

Room only starts building once you open the account, so opening early helps

A high-income year

RRSP first

Deduct at a high tax rate

Withdraw later, when retirement income is low

The tax you save can then go into a TFSA

Modest income, may need the money

TFSA first

Tax-free withdrawals

The room comes back the next year

When your income rises later, move the money into an RRSP

What newcomers should know

TFSA room starts in the year you become a resident
If you're 18 or older and have a SIN, room builds up from the year you become a Canadian resident; you don't get room for earlier years.
RRSP room depends on earned income
Room is based on the previous year's earned income as defined, minus any pension adjustment; in your first year in Canada you usually don't have any room yet.
The FHSA "first-time" test
In the current year and the previous 4 calendar years, you must not have lived in a home owned by you (or your spouse); if you had a home you lived in back in China, the same test applies.
Work out your room yourself
My Account isn't updated in real time, and last year's transactions may not show yet. For the TFSA, calculate your room yourself from complete deposit and withdrawal records at every institution, then check it against the CRA's figure. For the RRSP, start from the available contribution room on your latest notice of assessment, then subtract new contributions not yet reflected in it (that figure already takes off contributions reported in past years but not yet deducted, so don't subtract those again). For the FHSA, work it out from your account-opening and contribution records. The penalty on an over-contribution is 1% a month (the RRSP has a $2,000 buffer, so only the excess over $2,000 is taxed).

Points to watch

Don't put a TFSA withdrawal straight back
Room from a withdrawal only comes back on January 1 of the next year; putting the money back in the same year may be an over-contribution.
An FHSA lasts 15 years at most
The year of the 15th anniversary of opening, the year you turn 71, or the year after your first withdrawal to buy a home — the account must be used up by December 31 of whichever comes first. If you don't buy a home, you can transfer the money to an RRSP tax-free, without using RRSP room.
Which account holds your US stocks matters
In a TFSA, US dividends have 15% withheld by the US that can't be recovered; see "US Dividends: Which Account Should You Hold Them In?" in this series.

How Sheng Qian CPA can help

An order based on your income
Looking at your income this year and over the next few years, and your plans to buy a home, we set the order for contributing to the three accounts.
Using deductions well when you file
RRSP and FHSA deductions can be used in the year, or saved for a year when your income is higher.
Checking eligibility first for newcomers
In your first year after landing, we first confirm your TFSA and FHSA eligibility and room; for prices, see "What Sheng Qian CPA Can Do for Investors: Tax Returns, Accounts and Annual Planning" in this series.

Sources

Disclaimer

This article is general information only and is not tax or investment advice. Everyone's situation is different; please consult a CPA about your specific arrangements. Service fees are as set out in our written quote.