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TFSA vs Taxable Calculator

"Visualizing the 'Tax Drag' on your investments and how to maximize your tax-free growth."

Updated: March 7, 2026•Source: CRA / Service Canada

Tax-Free Growth is King

In a normal (taxable) account, the government takes a slice of your interest, dividends, and capital gains every year. In a TFSA, you keep 100% of the growth. Over decades, this difference is staggering.

📝 How to use

  • 1Enter your starting investment amount and monthly contribution.
  • 2Adjust the "Tax Rate" to reflect what you pay on your local investment income.
  • 3Watch the gap grow on the chart to see the "Tax Drag" you save with a TFSA.

🎯 Real-World Scenarios

The Compounding Advantage

Because you don't lose money to taxes each year, your TFSA has more "fuel" to compound over time.

The Hidden Cost

A 2% tax drag on a 6% return means you are actually LOSING 33% of your growth potential every single year.

Frequently Asked Questions

Is TFSA growth really tax-free?▼
Yes! Unlike an RRSP, you don't get a tax deduction when you contribute, but you also never pay tax on withdrawals—including all the investment growth.
Can I re-contribute if I withdraw?▼
Yes, but not until the following calendar year. Whatever amount you withdraw is added back to your contribution room on January 1st of the next year.
What happens if I over-contribute?▼
The CRA charges a penalty of 1% per month on the excess amount. It implies you should carefully track your limit via your CRA My Account.
$
CAD
$
CAD
6 %
40 %
20 yrs

The TFSA Advantage

$68,138

Extra wealth kept by avoiding tax drag.

What This Calculator Solves

This engine evaluates the long-term growth of an investment inside a Tax-Free Savings Account (TFSA) versus a taxable non-registered account. It quantifies the 'tax drag'—the silent erosion of your wealth caused by annual taxes on dividends, interest, and realized capital gains—demonstrating why the TFSA is often a superior tool for long-term wealth building.

Optimizing 'Asset Location' (TFSA vs RRSP)

Where you hold your investments is just as important as what you buy. This is known as Asset Location. While the TFSA is 'tax-free,' not all assets behave the same way within it.

The Foreign Tax Trap: Did you know that US dividends (like Apple or Microsoft) are subject to a 15% withholding tax by the IRS even if held in a TFSA? However, they are not taxed if held in an RRSP due to a specific US-Canada tax treaty. For high-growth US tech stocks, the TFSA is still great, but for high-yield US dividend payers, the RRSP usually wins.

Priority Assets: Taxable accounts are best for assets that generate Capital Gains (only 50% taxed) or Canadian Dividends (which get a tax credit). Interest-bearing investments (GICs and Bonds) are the most 'tax-inefficient' and should almost always be sheltered inside a TFSA or RRSP first to avoid being taxed at your full marginal rate.

Methodology & Data Sources

The 'Taxable' projection applies your specified 'Tax Rate' annually to the total investment return, reducing the effective compounding rate. For example, a 6% return with a 40% tax rate results in a 3.6% effective annual return. The 'TFSA' projection reinvests the full 6%. Both models assume annual contributions are made at the start of each year.

* Calculations are for educational purposes only.

Frequently Asked Questions

Is TFSA growth really tax-free?
Yes! Unlike an RRSP, you don't get a tax deduction when you contribute, but you also never pay tax on withdrawals—including all the investment growth.
Can I re-contribute if I withdraw?
Yes, but not until the following calendar year. Whatever amount you withdraw is added back to your contribution room on January 1st of the next year.
What happens if I over-contribute?
The CRA charges a penalty of 1% per month on the excess amount. It implies you should carefully track your limit via your CRA My Account.
What is the best type of investment for a TFSA?
Generally, investments with the highest growth potential (like equities/stocks) are best suited for a TFSA to maximize the total amount of tax-free gain. High-interest investments like GICs or Bonds are also good candidates because their interest is taxed at the highest rate in a taxable account.
How does the TFSA contribution room work?
Your contribution room is the total of: your annual TFSA dollar limit (e.g., $7,000 for 2024), any unused room from previous years, and any withdrawals made in the previous year. If you were 18 or older in 2009 and have never contributed, your total room could be over $95,000.
Is there a limit on what I can hold in a TFSA?
You can hold most standard investments: stocks, bonds, ETFs, GICs, and mutual funds. However, you cannot use a TFSA to 'carry on a business' (e.g., day trading), and you cannot hold 'non-qualified' or 'prohibited' investments without facing severe penalties.
What happens to my TFSA when I die?
If you name a 'Successor Holder' (spouse or common-law partner), the account maintains its tax-free status and is effectively merged with their TFSA. If you name a 'Beneficiary', the account is closed, and the value at the time of death is paid out tax-free, but any growth *after* the date of death is taxable.

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