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Investments in RRSP/RRIF TFSA or Non-Registered

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Stocks, Bonds etc. -> Investing Tax Issues -> Investments in registered or non-registered accounts?

Which investments should be held in an RRSP/RRIF, TFSA, or non-registered account?

From a tax perspective, where is it best to hold investments which generate the following types of income?  In the following analysis, #1 is our first choice, #2 is our second choice, and #3 is our last choice.  If you have all accounts - non-registered, TFSA and RRSP/RRIF, it is best to keep the investments that attract the highest tax rates inside your TFSA or RRSP/RRIF, and those that attract the lowest rates (Canadian dividends and capital gains) in a non-registered account.

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Capital gains

  1. non-registered or TFSA

  2. RRSP/RRIF

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Interest

  1. RRSP/RRIF or TFSA

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Return of capital combined with Canadian eligible dividends

  1. non-registered

  2. TFSA or RRSP/RRIF

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Return of capital combined with interest or foreign dividends

  1. TFSA or RRSP/RRIF due to reduced record-keeping requirements

  2. non-registered

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Canadian eligible dividends

  1. non-registered, to take advantage of the enhanced dividend tax credit

  2. RRSP/RRIF or TFSA

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Canadian non-eligible dividends

  1. non-registered, to take advantage of the small business dividend tax credit

  2. RRSP/RRIF or TFSA (when eligible for these accounts)

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Dividends from US corporations

  1. RRSP/RRIF because no dividend tax credit, and no withholding tax

  2. non-registered, because all or part of the 15% withholding tax can be recovered through the foreign tax credit

  3. TFSA - there will be withholding tax that cannot be recovered

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Other foreign dividends

  1. RRSP/RRIF, when the dividends are from a country that does not deduct withholding tax from dividends paid into the RRSP/RRIF

  2. non-registered, because all or part of the withholding tax can be recovered through the foreign tax credit

  3. TFSA - there will be withholding tax that cannot be recovered

From a tax perspective, where is it best to hold the following types of investments?

bulletBonds - interest-paying and non-interest paying (strip bonds)
  1. RRSP/RRIF or TFSA, because then no special recordkeeping is required, and not tax-efficient in a non-registered account
bulletTreasury bills (T-bills)
  1. RRSP/RRIF or TFSA - not tax efficient
bulletShares in corporations
bulletShares in Canadian corporations
  1. non-registered
  2. RRSP/RRIF or TFSA
bulletShares in US corporations
  1. RRSP/RRIF because no dividend tax credit, and no withholding tax
  2. non-registered, because all or part of the withholding tax can be recovered through the foreign tax credit
  3. TFSA - there will be 15% withholding tax that cannot be recovered
bulletShares in other foreign corporations
  1. RRSP/RRIF, when the dividends are from a country that does not deduct withholding tax from dividends paid into the RRSP/RRIF
  2. non-registered, because all or part of the withholding tax can be recovered through the foreign tax credit
  3. TFSA - there will be withholding tax that cannot be recovered
bulletCall options
  1. RRSP/RRIF or TFSA
  2. non-registered
bulletPut options
  1. only allowed in non-registered
bulletIncome trusts, mutual funds and exchange-traded funds (ETFs)
  1. RRSP/RRIF or TFSA, if the distributions are mostly other income (usually interest or foreign dividends) from which no withholding tax is deducted.
  2. non-registered, if the distributions are (a) mostly Canadian eligible dividends, capital gains, or return of capital, or (b) from a foreign source from which withholding tax is deducted.  Remember that there is additional recordkeeping needed for these investments.
  3. TFSA, if the distributions are from a foreign source from which withholding tax is deducted.
bullet

Flow-through shares

  1. non-registered account

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Term deposits, guaranteed income certificates

  1. RRSP/RRIF or TFSA

See also

bulletTax treatment of investments
bulletWhich investments should be held inside vs outside the RRSP?
bulletRecommend stocks/ETFs

 

Revised: October 15, 2013

 

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