How to Protect Your Retirement Savings From the CRA

Building a sizeable retirement pool is important, but it is equally important to protect it from the CRA’s tax claws.

Puja Tayal

Author Bio

Puja Tayal grew up in a small-business family where dinner conversations often centred on working capital and savings. Her early experiences with investing, particularly during the 2008 financial crisis, shaped her approach to understanding markets and evaluating investment opportunities. She began her career at a mutual fund company before moving into investor education and financial writing for asset and wealth management firms. Before joining The Motley Fool, Puja wrote for Market Realist, where she extensively covered the semiconductor industry. Her published work has also appeared in The Indian Express. Puja believes every stock has a story that can help investors understand its potential returns. She combines business analysis with different investing approaches to help investors make informed decisions and align their portfolios with their long-term financial goals. Outside of finance, Puja enjoys long drives, catching up with friends, watching superhero and science-fiction movies, and managing her family portfolio. She also has a keen interest in artificial intelligence and its potential to reshape the world.

Education

Bachelor's degree in Accounting and Finance, University of Mumbai (2007)
CFA Level I

Areas of Expertise

Qualitative company analysis, management strategy, risk assessment, long-term investing, portfolio diversification and rebalancing, dividend reinvestment, cyclical growth opportunities, compounding strategies, growth stocks, and dividend stocks.

Social Media Profiles

Favorite Investment Quote

"Risk comes from not knowing what you're doing." — Warren Buffett

Published March 24, 2025 8:30 pm EDT

Your retirement savings are a crucial aspect of your financial well-being. It becomes your primary source of income. If you come to know that the Canada Revenue Agency (CRA) is taking a big tax bite off your retirement savings, it could force you to work past retirement and live frugally. Many people plan their investments well and build up a sizeable retirement pool but fail to consider the tax implications. The outcome is a large portion of the savings going to tax payments and all your plans going down the drain.

RRSP Canadian Registered Retirement Savings Plan concept — Source: Getty Images

How to protect your retirement savings from the CRA

It is important to consider the tax implications while planning your investments so that you can retain most of your investment income. The CRA has several tax planning tools that you can use, with the Tax-Free Savings Account (TFSA) being the most tax-efficient. However, you have to be careful while using the TFSA, as it has its rules.

Every year, the CRA sets a TFSA contribution limit, and the unused portion keeps accumulating in the contribution room. If you were 18 or older in 2009 and never contributed to a TFSA, your cumulative contribution room could be up to $102,000 in 2025. If you withdraw some amount from your TFSA in 2024, the withdrawal amount is added back to the contribution room in 2025.

Make the most of this contribution room because if your $10,000 becomes $110,000 in 15 years, which has happened with those who invested in Constellation Software (TSX: CSU), the $100,000 capital gain is tax-free. Do not exceed the TFSA contribution room, or the surplus amount will be taxable.

Since you do not report the TFSA withdrawals in your taxable income, it does not reduce your Old Age Security (OAS) pension and Guaranteed Income Supplement (GIS) you may be eligible for after age 65. These benefits are reduced if your taxable income exceeds their income threshold requirement. For 2025, the OAS income threshold for ages 65-74 is a 2023 annual net world income of $142,609 or less.

How to plan your retirement savings

The first step is to max out your TFSA contribution room because no other account gives you the tax benefit TFSA does. Consider investing in high growth and dividend growth stocks, as they can generate higher investment income.

If you are saving up for your first home in a Registered Retirement Savings Plan (RRSP), consider switching to the First Home Savings Account (FHSA). The FHSA allows you to deduct the contributions from your taxable income and withdraw the amount tax-free to make a down payment for your first home. In the RRSP Home Buyers Plan, you have to repay the withdrawn amount in 15 years or add the balance to the taxable income, which is not the case with FHSA.

Constellation Software is a good growth stock to buy and hold in TFSA and FHSA. It has been generating a compounded annual growth rate (CAGR) of 20% that could double your money in five years. The company’s business model is resilient as it grows through acquisitions. Even if the stock gives subdued returns in a year, it bounces back with accelerated returns next year. It has a strong balance sheet and a regular cash flow, which it uses to fund new acquisitions.

The higher the house downpayment, the lower the mortgage requirement and the faster the repayment. It could help you retire debt-free.

Investor tips

You could consider investing a small portion in RRSP. Within this account, consider buying dividend stocks, as withdrawals are taxable. The only advantage of RRSP is you claim tax advantage today. Your Canada Pension Plan and OAS could provide a third of your daily expenses, and TFSA passive income could provide another one-third. The remaining one-third could be funded from RRSP passive income or side gigs you take up after retirement.

Consider using the TFSA for emergencies, recreation, surplus expenses, and other bigger expenses. This way, your higher withdrawals will not attract higher tax bills.