In an RRSP, you save your money, it grows tax-free, and then you withdraw it and pay all your taxes at the end. Who benefits from paying taxes at the end? Well, anyone who will be in a lower tax bracket when they withdraw the money than when they earned it.
In a TFSA, you pay tax on your money at the beginning, then you save it, and it grows tax-free from then on. Who benefits? Those who will be in a higher tax bracket when they withdraw the money.
Well, who in the world would be withdrawing their money at a higher tax bracket than when they earned it??
- Twentysomethings living at home with a low-paying job and even lower expenses. By their mid-30s, they may be in a pretty high tax bracket, and now they can grow their savings tax-free and withdraw it tax free. For instance, their TFSA (which could be as much as $80k) can be plunked down as a downpayment on their first home with no repercussions whatsoever. That's four times as much as the RRSP home-buyer's plan limit, and without the forced repayments.
- Low-income earners nearing retirement. Benefit "clawbacks" can put these people in a tax bracket of almost 90%, making an RRSP completely infeasible because they'd lose almost 90% of their savings. That means the lowest-income people are, ironically, the ones who can't make use of the tax-free compounding of RRSPs. The tax-free compounding of the TFSA puts these people on an even footing with richer Canadians.
Others probably won't benefit a whole lot from the TFSA. I guess people with too many investments to fit into their RRSPs—a very nice problem to have—can move some of the least tax-efficient ones (interest-earning investments like bank accounts and bonds) into the TFSA.