Open an RRSP account to reduce the amount of taxes you pay in Canada and save for your first house (up to $75 000)

In Canada, the Registered Retirement Savings Plan (RRSP) is an essential financial tool designed to help individuals save for retirement while benefiting from tax advantages. Opening an RRSP account is not only a smart financial move but also an important step toward securing your future


One of the primary reasons to open an RRSP account is the significant tax benefits it offers. Contributions made to an RRSP are tax-deductible, meaning you can reduce your taxable income by the amount you contribute. This can result in a lower tax bill, allowing you to keep more of your hard-earned money. How does this happen? I will show you an example and after this, you should be able to understand completely how to get $3000 to $5000 dollars extra per year in taxes back.

Let`s consider the case of a single person living in Alberta and making $75 000 per year. Using this online income tax calculator from Wealthsimple, the after-tax income is $56,082 and he will be paying $18,918 in taxes.

REMEMBER: Contributions made to an RRSP are tax-deductible, meaning you can reduce your taxable income by the amount you contribute

Now let`s say you want to pay less in taxes. If you are able to contribute $10 000 dollars in your Registered Retirement Savings Plan (RRSP), you can reduce your taxable income by $10 000.

Now instead of making $75,000 this year, it looks like you made only $65 000 (your taxable income has been reduced by the amount you contribute)

Using the same calculator, if you made only $65 000, you should have paid only $15,797 in taxes (not $18,918 that you paid when you made $75000)

When you file your taxes, that $10 000 contribution will help you save $2939 in taxes ($18 918 - $15 797 =$2939). You will receive a cheque of $2939 after filing your taxes.

The $10 000 contributed can be used to buy investments such as stocks, ETFs, and other kinds of investments(like options trading). The investments within an RRSP grow tax-free, allowing your savings to compound over time without the burden of annual tax obligations.

If you are planning to buy a house for the first time in Canada, money can be removed from the RRSP. The Canadian government introduced the Home Buyers' Plan (HBP), which allows first-time homebuyers to leverage their Registered Retirement Savings Plan (RRSP) for a down payment. Eligible individuals can withdraw up to $35,000 from their RRSPs, tax-free, to put towards the purchase of a qualifying home. Couples can each withdraw up to $35,000, resulting in a potential total withdrawal of $70,000.