General information only — not financial advice for your situation.
This is a learning tool. Always check CRA My Account records and talk to a qualified professional for your own numbers.
Plain English
As a contractor, some years are great and some are lean. Your TFSA is your go-to account because you can pull money out anytime without any tax hit. That's perfect for covering gaps between contracts. But when you land a big project and your income shoots way up, that's when the RRSP shines — the tax refund is much bigger at higher income levels. So use the TFSA as your base, and strategically use the RRSP when you have a windfall year.
Year 1: You earn $55,000 — contribute $7,000 to the TFSA (tax-free growth, easy access). Year 2: You land a huge contract and earn $130,000 — contribute $12,955 to the RRSP (bringing income to $117,045) and get a $5,625 refund at 43.41%. The TFSA handled your liquidity; the RRSP captured the spike.
Show the analysis
The contractor income profile typically oscillates between moderate ($50K–$80K, combined rates ~29.65%) and spike periods ($117K+, combined rates ~43.41%). TFSA deployment during moderate periods preserves liquidity with zero tax drag. RRSP deployment during spikes captures the 13+ percentage-point spread between the spike deduction rate and the expected moderate retirement withdrawal rate. The carry-forward mechanic of unused RRSP room enables strategic accumulation across lean years for concentrated deployment in high-income years.
Normal year ($55,000): TFSA $7,000 contribution — $0 tax benefit now, permanent tax-free growth. Spike year ($130,000): RRSP contribution of $12,955 (strips income to $117,045). Refund: $12,955 × 43.41% = $5,625. If withdrawn in retirement at 29.65%: $12,955 × 29.65% = $3,841 tax. Net arbitrage: $5,625 − $3,841 = $1,784 per spike-year contribution.
Edge cases
- Carry-forward RRSP room from low-income years is most valuable when deployed in spike years — don't waste it at a 20% rate when you could use it at 43%.
- If working through a personal corporation, ensure enough T4 salary is drawn to generate RRSP room (18% of salary, max $33,810 room per year).
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Every number on this site is sourced from CRA publications, the Income Tax Act, or provincial fiscal releases. We show the math, cite the sources, and never tell you what to do with your money.