Tax-free growth

Tax-free growth is the stronger of the two Canadian tax-shelter mechanics. Inside a tax-free wrapper, interest, dividends, and capital gains never appear on a T-slip — the government collects no tax on returns earned inside the account, and no tax on qualified withdrawals.

The TFSA is the pure example. Contributions are made with after-tax dollars (so the cost is paid up front), but every dollar of return after that belongs to the investor. The FHSA behaves the same way on withdrawal when used for a qualified first-home purchase.

Compared with deferred tax, tax-free growth removes the future-tax variable entirely. An RRSP's future value depends on both investment returns and the withdrawal-year marginal rate; a TFSA's future value depends only on returns. For an investor who expects to be in a higher marginal bracket in retirement, the TFSA's permanence is the bigger long-run lever.