Registered vs. non-registered savings plans
To have a registered savings plan, you must have signed an account agreement to that effect with your financial institution, the terms of which are then registered with the Canada Revenue Agency.
Financial institutions must report all transactions (deposits and withdrawals) made by each person annually in these plans, the best-known being RRSPs and RRIFs. All amounts deposited and withdrawn are subject to specific restrictions. In exchange, income tax on income earned is deferred until the time of withdrawal. The only exception to this is the TFSA, where no income tax is due on income (interest, dividends, capital gains) earned, as long as the rules governing deposits and withdrawals are followed.
Non-registered plans are simply savings accounts. Financial institutions are only obligated to report the income (interest earned) on the account annually. You are free to deposit and withdraw funds at any time.
How income is taxed
Income from investments held in non-registered accounts is taxed at different rates based on whether it comes from interest, dividends or capital gains.
- Interest income is taxable annually even if it hasn’t been paid out, such as in the case of accrued interest. This rule does not apply to the non-guaranteed portion of the market-linked guaranteed investments.
- Capital gains, or profits made from the sale of property, are taxed at 50%. This means that only half of the amount gained is taxable.
Example: If you sell a share that cost you $12 for $20, you’ll have capital gains of $8. Therefore, $4 of the capital gains is taxable. - Dividends are payments made by a company to shareholders based on the proportion of shares they hold. Dividends are taxable the year in which they are declared and entitle shareholders to a tax credit.
Find out more about the taxable amount of dividends
Example of how investment income is taxed at the federal level*
| Type of income |
Amount |
Income tax |
Dividend |
Net amount |
| Interest |
$5 000 |
$1 100 |
– |
$3 900 |
| Eligible dividends |
$5 000 |
$1 595 |
$1 375 |
$4 700 |
| Capital gains |
$5 000 |
$500 |
– |
$4 450 |
Which investments should I hold outside my RRSP?
To answer this question, you have to know how investment income is taxed.
Fixed-income securities (such as term savings and bonds) bear regular interest income, while stock issues generate capital gains and in some cases, dividends.
Since interest income is more heavily taxed, it is better to keep interest-generating investments in a registered plan. If you put them in your TFSA or RRSP, your returns will be higher, since interest grows tax-free.
But, since capital gains and dividends are taxed at a lower rate, you can hold investments outside a registered plan. Income taxes will not greatly diminish your income from these investments.
* Financial information provided is based on government tax requirements for the year 2009.