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

TaxTips.ca
Canadian Tax and
Financial Information

Investments in RRSP/RRIF TFSA or Non-Registered

TaxTips.ca does not research or endorse any product or service appearing in ads on this site. Before making a major financial decision you should consult a qualified professional.
Copyright © 2010

Looking for US tax information? See www.USTaxTips.net

List your firm for free in the TaxTips.ca Business Directory.

Need an accounting, tax or financial advisor? Look in the TaxTips.ca Business Directory.

Stocks, Bonds etc.

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.

Capital gains

non-registered
RRSP/RRIF or TFSA

Interest

RRSP/RRIF or TFSA

Return of capital

This depends on the makeup of the total distribution. If a large part of the distribution is eligible dividends, best in non-registered account. Otherwise, best in RRSP/RRIF or TFSA due to reduced recordkeeping requirements

Eligible dividends

non-registered, to take advantage of the enhanced dividend tax credit
RRSP/RRIF or TFSA

Non-eligible dividends

non-registered, to take advantage of the small business dividend tax credit
RRSP/RRIF or TFSA (when eligible)

US dividends

RRSP/RRIF because no dividend tax credit, and no withholding tax
non-registered, because all or part of the withholding tax can be recovered through the foreign tax credit
TFSA - there will be withholding tax that cannot be recovered

Other foreign dividends

RRSP/RRIF, when the dividends are from a country that does not deduct withholding tax from dividends paid into the RRSP/RRIF
non-registered, because all or part of the withholding tax can be recovered through the foreign tax credit
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?

Bonds - interest-paying and non-interest paying (strip bonds)

RRSP/RRIF or TFSA, because no special recordkeeping required, and not tax-efficient in a non-registered account

Treasury bills (T-bills)

RRSP/RRIF or TFSA - not tax efficient

Shares in corporations

	Shares in Canadian corporations non-registered RRSP/RRIF or TFSA
	Shares in US corporations RRSP/RRIF because no dividend tax credit, and no withholding tax non-registered, because all or part of the withholding tax can be recovered through the foreign tax credit TFSA - there will be withholding tax that cannot be recovered
	Shares in other foreign corporations RRSP/RRIF, when the dividends are from a country that does not deduct withholding tax from dividends paid into the RRSP/RRIF non-registered, because all or part of the withholding tax can be recovered through the foreign tax credit TFSA - there will be withholding tax that cannot be recovered

Call options

RRSP/RRIF or TFSA
non-registered

Put options

only allowed in non-registered

Income trusts, mutual funds and exchange-traded funds (ETFs)

RRSP/RRIF or TFSA, if the distributions are mostly other income (usually interest or foreign dividends) from which no withholding tax is deducted.
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.
TFSA, if the distributions are from a foreign source from which withholding tax is deducted.

	Flow-through shares non-registered account
	Term deposits, guaranteed income certificates RRSP/RRIF or TFSA