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Understanding Your Investment Account: Registered vs Non-registered Accounts

Unlocking the potential of your investment account is like optimizing which type of soil to grow your seeds for a secure financial future. Whether you’re planting for retirement or cultivating for wealth, choosing the right investment account type makes all the difference. 

Discover the world of investment accounts and their myriad benefits with this guide. Whatever your goals may be, we’re here to help with a range of investment options. 

Amur Capital offers a simple way to grow your money and receive a stable and consistent return. Contact us now, and we’ll help you start in a few minutes. 

Key takeaways:

  1. Investment accounts are like various types of soils for your seeds: Choosing between registered and non-registered accounts can impact your financial growth. 
  2. Registered accounts can provide immediate tax benefits, such as tax deferral and tax-free growth. Meanwhile, non-registered accounts allow a wider range of investment types with no contribution limits. 
  3. Amur Capital’s mortgage fund offerings are a flexible investment option that is eligible for both registered and non-registered accounts. 

Introduction to investment accounts  

One of the most important terms to be familiar with in investing is the investment account, which refers to an account that can hold stocks, bonds, cash, and other securities. Unlike a regular bank account, the value of assets an investment account holds can fluctuate. 

Imagine investment accounts as the types of soil a gardener may choose from to grow their seeds. Some types may be nutrient-rich, allowing your investments to flourish at a higher rate, while other types may be versatile to cultivate your wealth without limits. It is important to note that just opening an investment account won’t let you take advantage of its benefits; you also have to put the best investments that suit your financial goals. 

Types of investment accounts  

There are two types of investment accounts in Canada: registered accounts and non-registered accounts. Each account has unique benefits and deserves its place in your portfolio. Read below for their characteristics, differences, and advantages to know how to take advantage of them for your investing strategy. 

What is a registered investment account?  

A registered investment account is a specially created account registered with the government and offers several tax advantages from the Canada Revenue Agency (CRA). This means the gains on your investments, whether interest, capital, or dividends, within a registered account is only taxed once you take the money out (tax-deferred) or is generally tax-free (tax-sheltered), even during withdrawals. 

Some investment accounts, like the Registered Retirement Savings Plan (RRSP), also let you deduct your contributions from your income when filing your taxes, leading to a reduced tax amount to be paid in the year the contribution is made. 

Features of registered investment accounts  

The main benefit of registered accounts is that they allow you to invest and save tax-free, which means any investment income, capital gains, or dividends you receive within these accounts are not taxed. Here are some more benefits of registered accounts: 

  • Tax deferral: When you contribute to an RRSP, you’ll pay no tax on the investment gains. However, you still have to pay tax when you withdraw the funds. Tax deferral is especially helpful for those who are saving for their retirement (hence the name) and will withdraw funds once they are retired. They will pay less tax since they are in a lower tax bracket in retirement.

  • Tax savings: With tax savings, you can allocate extra funds to other projects or invest in new assets.

  • Faster compounding: Your investments can compound faster because you don’t pay taxes on investment gains or dividends. 

That said, registered accounts are governed by regulations, and they have limitations and restrictions too. These are: 

  • Contribution limits: A contribution limit means capping how much you can put into your registered accounts, with some having annual or lifetime limits. For example, a Tax-Free Savings Account (TFSA) has an annual contribution room of $7,000 for 2024, plus any unused contribution room from previous years. Meanwhile, a Registered Education Savings Plan (RESP) has a lifetime limit of $50,000 per beneficiary.

  • Eligible investment types: Only qualified investments, such as stocks, bonds, mutual funds, and GICs, can be held in a registered investment account. Real estate and cryptocurrency are excluded; however, investments like Mortgage Investment Corporations (MICs) are eligible and allow you to benefit from the real estate market without directly owning or managing a property.

  • Withdrawal limits: You can withdraw anytime if your funds are not in a locked-in account, such as a Locked-In Retirement Account (LIRA). However, as in the case of RRSPs, you may be required to pay tax on your withdrawals. 

Types of registered accounts in Canada  

  1. Registered Retirement Savings Plan (RRSP)

One of the most popular registered accounts among Canadians, a Registered Retirement Savings Plan (RRSP) enables you to invest and grow your capital tax-free. It allows you to invest up to 18% of your annual income tax-free from the previous year, plus any unused contributions for future use. 

Any money you put into an RRSP within the contribution limit is also tax-deductible, meaning your taxable income will be reduced when you claim the tax deduction. RRSPs are designed for long-term retirement savings, which is why there are penalties for withdrawing early. 

RRSP 2024Adapted from Canada Revenue Agency. Illustration from Amur Capital. 

  1. Tax-Free Savings Account (TFSA)

A Tax-Free Savings Account (TFSA) is a savings account designed for 18 years or older to save and invest tax-free money. While any amount contributed, including investment gains for assets held under this account is not taxable, it is not tax-deductible like in RRSPs. However, withdrawals are tax-free, and you can re-contribute the following year with your unused contribution room. 

Any individual who is a resident of Canada who has a valid Social Insurance Number (SIN) and is 18 years of age or older is eligible to open a TFSA. Non-residents are also eligible if they satisfy some requirements. However, they will be subject to 1% tax for each month the contribution stays in the account. 

For 2024, the federal government set the TFSA limit at $7,000. Just like RRSPs, if you contribute more than your available contribution room, you will be subject to penalties. 

TFSA 2024Adapted from Canada Revenue Agency. Illustration from Amur Capital. 

  1. Registered Retirement Income Fund (RRIF)

The Registered Retirement Income Fund (RRIF) can be considered an extension to the RRSP. By December 31 of the year you turn 71, you must convert your RRSP accounts into an RRIF or annuity. 

With RRIFs, your funds will continue to grow tax-free; however, you will not be able to contribute. Instead, you are required to withdraw from it based on minimum withdrawal rates set by the CRA. This amount will increase as you get older. 

RRIF 2024Adapted from Canada Revenue Agency. Illustration from Amur Capital. 

  1. Registered Education Savings Plan (RESP)

The Registered Education Savings Plan (RESP) allows individuals, particularly parents, to set aside money for their own or their children’s post-secondary education. Funds held in this account will grow tax-free but are subject to tax during withdrawals. Withdrawals are taxed at the beneficiary level, and since the beneficiaries are usually students with little earned income, the tax could be minimal. 

RESPs are eligible for government grants, such as the Canada Learning Bond (CLB) and the Canada Education Savings Grant (CESB), which can provide a lifetime maximum of $2,000 for each eligible beneficiary and $7,200 to a RESP, respectively. 

RESP 2024Adapted from Canada Revenue Agency. Illustration from Amur Capital. 

  1. First Home Savings Account (FHSA)

The First Home Savings Account (FHSA) is a registered plan that helps first-time home buyers save for their down payment. 

FHSA holders can enjoy the upsides of both RRSP and TFSA, which means contributions are tax-deductible while withdrawals are not taxed. There is an annual contribution limit of $8,000 with up to a maximum contribution amount of $40,000. 

FHSA 2024Adapted from Canada Revenue Agency. Illustration from Amur Capital. 

What is a non-registered investment account?  

A non-registered account is an investment account that does not receive any tax benefits. Unlike registered accounts, investment income such as interest, dividends, and capital gains in funds held in non-registered accounts are taxed at the marginal tax rate when they occur. 

Features of non-registered investment accounts  

The main benefits of non-registered accounts are uncapped contribution and withdrawal limits, allowing you to invest and withdraw whenever you want. Here are some more benefits of non-registered accounts: 

  • Open to all asset classes: Non-registered accounts can hold mutual funds, exchange-traded funds (ETFs), stocks, bonds, collectibles, cryptocurrency, and real estate.

  • Tax-loss harvesting: When you sell an investment at below its original purchase price, you trigger a capital loss. However, you can use this loss to offset your capital gains, reducing your payable taxes and minimizing the negative impact of losses in your portfolio.  

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. Since registered accounts are not taxed, they do not benefit from tax-loss harvesting. 

  • Viable complements: Non-registered accounts can complement your investing and saving strategy when you’ve reached the contribution limit for your TFSA or RRSPs. Since non-registered accounts have no expiry, you can invest for the short or long term. 

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, which means an asset that is 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, contributions in non-registered accounts cannot be used for tax deductions. 

Types of non-registered accounts in Canada  

  1. Cash account

A cash account is a regular, non-registered investment account that can hold stocks, bonds, and other financial assets. You can open an individual or joint cash account. 

  1. Margin account

A margin account functions the same as a cash account but also comes with the added benefit of leverage. This means investors can borrow money to invest. 

Choosing between registered vs non-registered investments  

Registered vs Nonregistered Accounts 2024Comparison between a registered and non-registered account. Illustration from Amur Capital. 

Both registered and non-registered accounts offer their unique benefits. Registered accounts, like RRSPs and TFSAs, offer immediate tax advantages. However, non-registered accounts can provide flexibility, especially with no contribution limits and the expanded types of investments they can hold. 

While having both types in your portfolio can be beneficial to maximize every dollar you save and invest, it is essential to consider other factors, such as timing or risk tolerance, as you create a robust investment plan to achieve your goals. For example, someone who is starting a new career can opt for a TFSA for tax-free investment growth, as their tax rates will increase along with their income. 

Amur Capital: Unlocking investment opportunities with any account structure 

Whether nestled within registered accounts for tax advantages or held in non-registered accounts for flexibility, Amur Capital’s Mortgage Investment Corporation (MIC) funds are a versatile option for investors looking for a secure foundation for financial growth. 

With MICs, investors can tap into the thriving real estate market in Canada without buying or managing any property. In addition, each of our MIC offerings enjoys a special tax status as a flow-through entity, which means the MIC distributes 100% of its net profits to the shareholders. 

Contact our Investor Relations team today to get started. 

Frequently Asked Questions

The main difference between registered and unregistered funds is the account where they are held and the benefits of said account. Registered funds are held in registered investment accounts, such as tax-free savings accounts (TFSAs) and registered retirement savings plans (RRSPs). In contrast, unregistered funds are held in non-registered investment accounts.

A registered account is a savings and investment account created by the federal government that offers tax benefits. Any investment income, such as capital gains, interest, or dividends, held in these accounts is tax-sheltered or tax-deferred until withdrawal. 

Yes, a TFSA is a registered account. 

The tax rate for non-registered accounts in Canada varies according to the federal and provincial tax rates. In addition, the tax rate can vary depending on the type of investment gains incurred. 

Unlike registered accounts, you can invest and withdraw as much as you want in a non-registered account. 

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