Having $10,000 ready to invest is a good start. However, you should think through how much to invest in a Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). What split is good for next door Billy or your boss Joan may not be ideal for you. Each has a different financial profile, tax obligation, and investment goal.
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How you could split $10,000 between your TFSA and RRSP
Here’s how you can plan your $10,000 investment.
Firstly, know your contribution room. The CRA is strict about it and may impose a 1% penalty on the surplus if you exceed your contribution room. For a TFSA, the 2026 limit is $7,000, provided you made no TFSA contributions since January 1, 2026. You can check your contribution room for both the TFSA and RRSP by logging on to My CRA Account.
Secondly, look at your expected tax liability for 2026. With only two months left in the year, you can estimate your 2026 tax bill. The RRSP contribution will help you deduct that amount from your taxable income.
Thirdly, if the tax bill is not significant:
- Consider maxing out your TFSA if you want anytime access to your money. The TFSA allows you to withdraw tax-free, and withdrawals are added to next year’s contribution room.
- Consider an RRSP if you are accumulating unused contributions for a future tax liability. RRSP withdrawals are taxable, but it allows you to carry forward unused contributions for future tax deductions.
An ideal scenario for RRSP investment
Let’s understand the RRSP scenario with an example. Joan received a salary hike this year, increasing her 2026 taxable earnings to $70,000. She has no immediate goals and is building a retirement pool. Her federal tax liability will be approximately $10,546. However, if she invests the entire $10,000 in an RRSP, her tax liability will reduce to $8,496. Even provincial tax savings will come. Another way to look at it is the RRSP gives Joan an immediate return of 20% on a $10,000 investment. This would be absent in the TFSA.
| Income Level 2026 | Tax Rate | Taxable Income | Income Tax | Taxable Income After $10,000 RRSP Contribution | |
| $58,523 | 14% | $70,000 | $8,193.22 | $60,000 | $8,193.22 |
| Over $58,523 up to $117,045 | 20.50% | $2,352.79 | $302.79 | ||
| Federal Tax Liability | $10,546.01 | $8,496.01 | |||
| Tax Savings | $2,050.00 |
Joan can skew her investment more towards the RRSP, maybe 70% or 80% of the $10,000 amount. An ideal RRSP stock is the one with long-term growth potential, like Constellation Software (TSX: CSU). It runs on a compounding model wherein the company keeps acquiring niche, mission-critical, vertical-specific software companies with regular cash flow from maintenance. With the PHP crisis, artificial intelligence (AI) has once again come under scrutiny, giving Constellation a boost.
The recent surge in Constellation’s share price shows that even in the world of AI, there is a market for traditional software. Constellation is trying a new acquisition approach: it is acquiring slightly bigger companies than those with $5–$10 million in annual revenue. This is because cash flow from previous acquisitions is giving it a bigger annual cash pool of $1.7 billion to reinvest and grow capital. Smaller acquisitions were easy to close and had a faster turnaround. Bigger acquisitions are strategic, considering how AI pulled down software companies’ valuations.
While Constellation’s stock price may be volatile in the short term, the long-term growth looks promising as traditional software and AI find their place in the market.
An ideal scenario for a TFSA
If a tax bill is not a worry for you, you can invest more in a TFSA and build a sizeable portfolio. TFSA contributions bring no tax advantages. But once the amount is in the account, any income you earn through dividends, capital gains, or interest is tax-free, except for US dividends.
An ideal TFSA stock is Canadian Natural Resources (TSX: CNQ), as it can give both capital gains and dividend growth. It has been making strategic acquisitions and strengthening the balance sheet to make the most of the energy upcycle. The Middle East energy crisis is escalating with Houthi attacks on Saudi Arabia. Rising oil and gas prices will continue to increase CNQ’s share price. Consider buying the stock at any dip, as the company can grow dividends by 10–20% on average.
