Doctors of BC recently sent out their annual reminder to claim your CPRSP benefits. This is a great time to revisit whether contributing to an RRSP or TFSA makes the most sense for you.
Many incorporated physicians are working hard to save their money for retirement. RRSPs and TFSAs are both excellent tools that complement your corporate savings structure. Here are the key features of each.
RRSP
- Full tax deduction on contributions
- Tax-free growth until withdrawal
- Contributions limited to 18% of the previous year’s earned income (maximum $32,490 for 2025)
- Money can be used towards a first home purchase (maximum $60,000)
- Must be converted to a RRIF by the end of the year you turn 71, after which minimal annual withdrawals commence
- Full amount taxable in the year of death (if there is no spouse)
TFSA
- Contributions are from after-tax dollars (no tax deduction)
- All investment growth is completely tax-free
- Annual contribution limit of $7,000 ($102,000 lifetime as of 2025)
- Withdrawals are non-taxable and won’t impact your government benefits during retirement
The RRSP, along with your corporate savings, can be a great tool. It can often make sense to maximize your RRSP annually if you are in the top tax bracket and saving significant funds in your corporation already. Not only does the contribution grow tax deferred for years, but doing so will also allow you to keep your “passive” income in the corporation, lower year after yea,r which creates some tax benefits for you in the future. There are some drawbacks, though. For example, once money is in your RRSP, you cannot easily access it for large outlays, like a car or a lump-sum mortgage payment.
Whether to invest in a TFSA can be a bit more complex. As you don’t get a tax deduction for the contribution, you are starting with less money to invest. For example, if you are in the top tax bracket, you would need to draw an additional salary of $15,000 in order to invest $7,000 in the TFSA each year. The rate of return on your investments and the type of investment income you are earning will have a significant impact on deciding whether it is worth drawing out the funds from the company, and paying the tax now, or just investing further inside the corporation.
Remember that for both the RRSP and TFSA, there are rules about what investments you can hold inside each. For example, direct ownership of real estate or shares of your own private corporation would not qualify.
When it comes to the CPRSP contributions, if you don’t already maximize your RRSP and TFSA each year and you are in the top tax bracket, then generally speaking, you should prioritize the RRSP. As the CPRSP benefit you receive is fully taxable in the year you receive it, the deduction from the RRSP contribution creates a wash. If you don’t put the funds in your RRSP, there will be a tax liability equal to as much as 53.5% of the benefit received. If, however, you have a lower taxable income, you may want to consider the TFSA as the up-front tax hit will be less and you can take advantage of long-term tax-free growth.
The are many factors that need to be considered when deciding between RRSP and TFSA. No one strategy works for everyone. The decisions are dependent on your personal financial situation, goals, and investment strategies. Please reach out to your PJ&A advisor to discuss your financial plan and which strategy makes the most sense for you.
