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At the same five per cent rate of return, your non-registered investment would have grown by $100 ($2,000 times five per cent), making your account worth $2,100 at the end of the year. If you were to then cash in your non-registered investment, assuming that the five per cent growth was in the form of a 50 per cent taxable capital gain, you will pay tax of about $17 (50 per cent times $100 times 33.33 per cent), yielding $2,083.

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As we can see, the value of non-registered investment ($2,083) after-tax, is worth less than the value of the RRSP ($2,100), meaning your RRSP has effectively given you a tax-free return of $100 (five per cent) on your “net investment” of $2,000 (being the $3,000 you contributed less the 33.33 per cent tax you paid).

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Another way to think of it is to consider your RRSP a partnership between you and the government. Retired Ottawa accountant Paul Rastas has more than 50 years’ experience in Canadian tax planning and compliance, and for years has been trying to help Canadians better understand the mechanics of the RRSP. As Mr. Rastas puts it, “Contrary to popular belief, your RRSP statement does not report your investment ‘value’ in real Canadian dollars. It is in ‘RR$P dollars.’ RR$P dollars are analogous to a foreign currency and must be converted to real Canadian dollars before being spendable. The exchange rate is your individual, personal, marginal tax rate.”

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Mr. Rastas gives an example of someone who contributes $10,000 to an RRSP. While their RRSP statement may show $10,000, this actually represents (at a 30 per cent marginal rate) a $7,000 investment, plus $3,000 of what he refers to as “pre-paid tax,” due to the CRA upon withdrawal. (The example assumes your tax rate in the year of contribution of 30 per cent is the same as your rate in the year of withdrawal).

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If that $10,000 was invested at 7 per cent, a decade later the RRSP would be worth nearly double, or almost $20,000. This $20,000 balance represents the initial $7,000 investment, plus $7,000 of growth, plus the original $3,000 of “pre-paid tax,” plus $3,000 of growth on that. The net $7,000 investment doubled, tax-free, and is now worth $14,000 after-tax. As proof, if the RRSP worth $20,000 is cashed in, tax of 30 per cent, or $6,000, would be paid, leaving $14,000 after-tax.

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As a reminder, the 2026 RRSP contribution deadline is Monday, March 2, 2026, if you want to claim a deduction against your 2025 income.

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Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com.

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