RRSPs are an important planning instrument for Canadians, especially because of their tax advantages. There are two main tax benefits:

1) You can deduct contributions against your income. For example, if your tax rate is 40%, every $100 put into an RRSP will save you from paying $40 in taxes.

2) You get a tax shelter from any capital gains or income earned inside of an RRSP. This means that, over the long run, you can truly put your money to work for you through compounding.

The fundamental principal behind RRSPs is that you are delaying the payment of taxes from the time when you are usually taxed higher (income earning years) to a time when you are taxed less (retirement). The hope is that this will encourage people to save for retirement earlier rather than later, when it may be too late.