Non-registered accounts provide a flexible way to grow your savings, allowing you to make deposits and withdrawals anytime. Here are some key features of non-registered accounts to help you decide if they are the right fit for your financial goals.
Key Takeaways:
- Non-registered accounts are taxable investment accounts that do not have contribution limits. They also allow you to withdraw your money to use for any reason.
- The two most common non-registered accounts in Canada are cash accounts and margin accounts.
- Amur Capital’s Mortgage Investment Corporations (MICs) are a viable investment option to pair with a cash non-registered account, maximizing contribution flexibility with best-in-class yields.
What is a non-registered account?
A non-registered account is a taxable investment account, which means the income on the investments held in the account is subject to taxation as it is earned or realized. This includes interest, dividends, and capital gains.
Unlike registered accounts, such as Registered Retirement Savings Plans (RRSPs) or Tax-Free Savings Accounts (TFSAs), non-registered accounts do not have contribution limits or withdrawal restrictions, providing greater flexibility in managing your investments.
Features and benefits of non-registered accounts
Non-registered accounts offer a world of flexibility for your investment journey. With uncapped contribution and withdrawal limits, you can invest and withdraw whenever it suits you. Let’s explore some of the standout benefits that make non-registered accounts an attractive choice:
- Open to all asset classes: Unlike registered accounts, which are limited to registered investments, one of the most exciting aspects of non-registered accounts is their versatility. In addition to the usual stocks, bonds, and mutual funds, non-registered accounts can also hold real estate, and collectibles.
- Tax-loss harvesting: When you sell an investment for less than what you paid, you incur a capital loss. You can then use these losses to offset capital gains, reducing your tax burden. Unlike tax-sheltered registered accounts, non-registered accounts provide this valuable opportunity for tax optimization. Capital losses can be used in the current year, the three preceding years, or in any future year as long as you make the necessary reporting of a capital gain or loss.
- Viable complements: Once you hit the contribution limits for your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP), non-registered accounts become a fantastic addition to your financial strategy. With no expiry date, you can invest in both the short and long term, giving you the flexibility to adapt to changing financial goals.
Meanwhile, here are the drawbacks of non-registered accounts:
- Taxable investment income: While non-registered accounts have no contribution limits, all investment gains except unrealized capital gains are subject to tax. Specifically, 50% of your net capital gain is taxable. For example, an asset sold for $1000 more than its original price has a taxable income of $500. The $500 will be added to your marginal tax rate based on your tax bracket. Meanwhile, 100% of your interest income is taxed at your full marginal income tax rate.
- Non-tax deductible: Unlike RRSPs, non-registered accounts have no tax-deferred growth.
How does a non-registered account work?
A non-registered account in Canada allows investors to buy and sell a wide range of assets without contribution limits. This means you can invest as much money as you want in a non-registered account and contribute to it for as long as you want.
While there are no tax advantages, you can withdraw funds at any time. It’s a flexible option for managing investments with straightforward tax reporting.
Types of non-registered accounts
Canada has two common types of non-registered accounts, each with unique features and benefits.
Cash account
A cash account is an investment account that allows investors to buy and sell securities using only the cash deposited in the account. This simplicity ensures that investors can only invest within their means and avoid too much debt.
Margin account
A margin account is an investment account that allows investors to borrow money to purchase assets. The margin account and the securities held within it are then used as collateral for the loan.
With margin accounts, investors are charged interest on the margin funds as long as the loan is outstanding, increasing the cost of buying securities. However, if the securities purchased with margin funds increase in value more than the interest charged, the investor achieves a higher total return than if they had only used their own cash.
How are non-registered accounts taxed?
Non-registered accounts are taxed differently depending on the assets held within them. Here is how capital gains, interest income, and dividends are taxed:
- Capital gains: With a non-registered account, you must pay tax on capital gains when they are realized. The 2024 Federal Budget plan introduced a few changes to the taxation of capital gains in Canada. For individuals, the inclusion rate went up from 50% to 66.7% for capital gains above $250,000 each year. For capital gains below $250,000, the inclusion rate remains at 50%.
- Interest income: 100% of the interest income from savings accounts, guaranteed investment certificates (GICs), and bonds are taxed at the individual’s marginal income tax rate the year they are received.
- Dividend income: Dividends are taxable income, which means they are subject to tax in the year they are received. In addition, dividends received by a Canadian resident from a Canadian business get a dividend tax credit.
How do I open a non-registered account?
Major financial institutions, such as banks and some investment firms, offer non-registered accounts. Other financial service providers also offer online openings to ease investors’ process. Once opened, non-registered accounts remain active as long as they have funds or investments.
The best investments for non-registered accounts in Canada
Before you invest using a non-registered account, remember to start with a personalized investment plan to ensure alignment with your unique financial goals, timelines, and risk tolerances.
Ready to invest? Here are some investment options to consider for your registered accounts:
Stocks/Equities
Investing in stocks means directly buying a share of a business or company. While stocks can offer higher returns, they also carry increased risks due to market fluctuations and dependence on company valuations on performance. If you’re comfortable with this volatility, consider discussing equity allocation with a financial advisor to boost your long-term growth potential.
Government and Corporate Bonds
Buying bonds involves lending money to a government or corporation, which must repay the bond’s face value plus interest at maturity. Bonds can provide predictable growth, with government bonds offering lower risk and typically lower returns compared to corporate bonds, which vary based on credit ratings.
Mutual Funds
Mutual funds allow you to invest in a diversified portfolio of stocks, bonds, and other securities. These funds are managed by a fund manager, who handles buying and selling assets on your behalf. This option is ideal for those seeking a hands-off investment approach.
Guaranteed Investment Certificates (GICs)
GICs are low-risk investments that guarantee your principal plus interest. They are favoured by conservative investors looking to preserve capital while earning more than standard savings accounts.
Real Estate
Real estate is one of the world’s oldest yet largest asset classes, delivering attractive risk-adjusted returns for investors. Although traditional real estate investing involves purchasing or owning physical properties used for either leasing or flipping; it can be costly and arduous.
An alternative, passive way to invest in real estate is through Mortgage Investment Corporations (MICs), which pool funds to invest in diversified mortgages. These corporations offer access to the real estate market without the volatility of stocks or property management hassles.
Amur Capital MICs: A simpler way to invest for non-registered accounts
Non-registered cash accounts present a world of flexibility and diverse investment opportunities for investors. If you’re ready to simplify your investment journey, Amur Capital MICs provide a streamlined approach, combining ease of access with potential growth opportunities.
- Amur Capital Conservative Income Fund (ACCIF) provides investors with stability in returns and reliable income, with a focus on residential first mortgages. Its target net annual return is 9.00%.
- Amur Capital Income Fund (ACIF) offers investors stability and income growth. Established in 1984, it focuses on first—and second-home mortgages and has a target net annual return of 11.00%.
- Amur Capital High Yield Fund (ACHYF) is for investors willing to accept increased risk. The fund focuses on higher ratio mortgages over shorter terms and has a target net annual return of 13.00%.
Interested in investing with us? Contact our Investor Relations team today!
FAQs
What happens when you withdraw from a non-registered account?
There are no withdrawal limits with a non-registered account. Remember that investment income remains subject to tax when it is earned.
What is an example of a non-registered account in Canada?
Cash and margin accounts are Canada’s two most common non-registered accounts.
Can you name a beneficiary on a non-registered account in Canada?
It’snot possible to name a beneficiary or successor holder on non-registered accounts, as it can only be your spouse or common-law partner.
Is a non-registered account worth it?
Whether a non-registered account is worth it depends on your financial needs and goals. It can be an excellent complement to your registered accounts to maximize your savings.
