My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. My posts are blunt, opinionated and even have a twist of humour/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, October 30, 2017

Tax Efficient Investing - Part 2

Two weeks ago I discussed tax efficient investing within a TFSA. Today I conclude this discussion with a review of tax-efficient investing options within non-registered accounts, TFSAs and RESPS.

Non-registered Account

To ensure we are on the same wavelength, when I say non-registered, I am talking about taxable investment accounts you hold, excluding RRSPs, RESPs and TFSAs.

I don’t want to be repetitive, so I will not again list the non-tax considerations one must account for before determining the most tax efficient use of this account (see these considerations in the TFSA discussion from the first post). However, one specific consideration applicable to non-registered accounts is your capital loss carryforward balance. If you have capital loss carryforwards, you will want to use these losses against future capital gains and have a definite bias towards holding equities that will produce capital gains.

For non-registered accounts, since they are taxable at your marginal rate, you will typically want to hold investments that are subject to the lowest tax rates.

1. Equities – since capital gains are subject to a 50% inclusion, you typically will prefer to hold your equities in your non-registered account, as they result in the lowest tax cost, say 26% or so at the highest marginal rate, as opposed to say interest instruments that would result in a 53% tax cost.

2. Canadian Dividends – since you receive a dividend tax credit for both eligible and non-eligible dividends, you will have a tax preference to use the dividend tax credits in your non-registered account or you lose the credit. Eligible dividends which come typically from public corporations are preferable to non-eligible dividends.

3. REIT – since you receive tax-free distributions of ROC and this ROC reduces your ACB resulting in larger capital gains, you may wish to hold a REITs or ROC type investment in a non-registered account. You will consider this if you are willing to deal with tracking the ACB (see the first post) and the REIT is not allocating significant other income that is subject to the high marginal rates. Note, if the ROC is not large or declining, you will likely not want to hold REITs in your non-registered account and may wish to hold them in your TFSA in any event to avoid the "tracking hassle".


For registered accounts, since the income is earned tax-free before you start withdrawing from your RRSP/RRIF, you will typically want to hold investments that have the highest tax rates attached to them. In general you will not want to hold high growth equity, since even though large gains will be deferred and can compound tax-free within the RRSP, when you withdraw the funds, the 26% capital gain rate essentially becomes 53% if you withdraw money from your RRSP/RRIF at the high rate of tax. Thus you will have effectively lost the 50% tax savings associated with a capital gain (although you will have deferred the tax possibly many years).

1. U.S. Stocks that Pay Dividends – there is no foreign withholding tax on U.S. dividends paid to an RRSP, so an RRSP is very tax effective for such dividends. US dividends received by a non-registered account are taxed as regular income (as noted in the first post on this topic, US dividends in a TFSA are subject to the tax withholding with no tax credit benefit). Keep in mind, this tax treatment is specific to U.S. stocks and does not necessarily apply to other countries.

2. Fixed Income – because these investments are fully taxable, the tax savings are maximized in an RRSP. Conceptually, using fixed income prevents your RRSP from growing larger, since you do not have as large an equity component. However, in a balanced overall portfolio, you will likely have held that part of your equity component in lower taxing non-registered or TFSA accounts, so overall your total retirement pie should be somewhat equivalent.

Thus, when you start making RRSP withdrawals for your retirement, you will likely have a more effective taxable mix coming from smaller RRSP balance (that may be taxable at your highest marginal rate) with a mix of retirement funds that grew more tax effectively in your TFSA (that can be withdrawn tax free) and/or non-registered account, that may result in a lower overall tax cost at retirement.


These accounts have a singular purpose -- funding your children’s education. Thus, many experts suggest these accounts should have a more conservative bent. However, if you start the account for your child or children, at a very early age, you will be able to invest through one or two investment cycles and a well balance diversified portfolio may make sense, but speak to your investment advisor for their input.

As I stated at the outset of this series, tax and investment decisions should not be made in isolation, and tax efficiency must be considered in context of portfolio risk management and asset allocation. Once you have considered these issues, then the tax efficiencies above should be considered.

The above in not intended to provide investment advice. Please speak to your investment advisor.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.


  1. I was wondering how international equities (non-US) fit into the picture. For tax efficiency, should they be handled in the same manner as US equities, or are there differences to be aware of?. I use iShares' XEF to get international exposure.

    1. Hi Anon

      This is a complicated issue, so I will provide a link that provides some detail.

  2. What about Corporate Class Mutual Funds in the non-registered account as they do not distribute income, typically?

    1. Hi Anon

      Yes they work, but without the tax free status change, they are less enticing.

  3. Mark..
    Good info on all categories.

    I understand one can hold equities in your RRSP in a insurance product that would be safe in you declare bankruptcy

    But are they secure if you dont declare bankrupty!

    What kind of insurance product would that be..

    Any thoughts..


    1. I think you are thinking of a segregated fund, I dont really know them well enough to discuss