Keep More to Grow More

2 min read

One of the best ways to maximize your savings is to take advantage of tax-sheltered plans.

Tax Treatment of Non-Registered Investments

If you held an investment outside of a tax-deferred plan, you are required to report the following income on your Canadian income tax return*:

  • Distributions in the form of interest, dividends or capital gains paid to you by any fund, including those reinvested
  • Gains (or losses) realized when selling or redeeming units or shares of your fund

Tax Treatment of Registered Investments

On the other hand, distributions on funds held in a tax-sheltered plan – such as a Registered Retirement Savings Plan (RRSP), a Registered Retirement Income Fund (RRIF), a Registered Education Savings Plan (RESP), or a Tax Free Savings Account (TFSA) – do not need to be reported as taxable income and they are automatically reinvested.

However, you are required to report on your Canadian income tax return* when money is withdrawn from a registered plan (the exception being a TFSA – because you’re investing with after-tax dollars, the amount withdrawn is not taxable).

For example, let’s say you decide to set aside $500 a month. Maybe you want to save for a dream vacation. Or a new car. Or to renovate your kitchen.

Does it really make a difference if you put the money into a tax-sheltered plan, such as a TFSA, which can be used for any financial goal?

The chart below shows the same amount of money ($500/month) being invested in the same product (a hypothetical investment with a 5% annual return).

The only difference: Investor A chose a TFSA account, while Investor B chose a non-registered account. After one year, the amount may not seem significant but it makes a big difference over a longer time period.
Source: AGF Investments Inc. Performance returns presented are hypothetical and for illustrative purposes only. It does not represent actual performance. Assumptions were made in the calculation of these returns including $500 invested at the beginning of each month in a hypothetical investment with a rate of return of 5%. Of the 5% return, distribution yield of 2.0% (distribution composed of 50% interest and 50% capital gain). Interest taxed in the year received, while unrealized capital gains were taxed at the end of the holding period. Marginal tax rate of 50% for interest and 25% for capital gains, distributions reinvested. Taxes paid from out of pocket (not from sale of shares). Trading costs and other fees associated with the portfolios are not included and trading prices and frequency implicit in the hypothetical performance may differ from what may have actually been realized at the time given prevailing market conditions. This performance simulation is for illustrative purposes only and does not reflect actual past performance nor does it guarantee future performance.

To find out more about tax-sheltered plans, contact your financial advisor or visit the Registered Plans page on


*For more detailed information on the tax treatment of income received by an individual from Canadian mutual funds, refer to Canada Revenue Agency (CRA) information guide RC4169 – “Tax Treatment of Mutual Funds for Individuals”.

The commentaries contained herein are provided as a general source of information and should not be considered personal investment or tax advice. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained here.

The contents of this Web site are provided for informational and educational purposes, and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. Please consult with your own professional advisor on your particular circumstances.

AGF Management Limited (“AGF”), a Canadian reporting issuer, is an independent firm composed of wholly owned globally diverse asset management firms. AGF’s investment management subsidiaries include AGF Investments Inc. (“AGFI”), AGF Investments America Inc. (“AGFA”), Highstreet Asset Management Inc. (“Highstreet”), AGF Investments LLC (formerly FFCM LLC) (“AGFUS”), AGF International Advisors Company Limited (“AGFIA”), Doherty & Associates Ltd. (“Doherty”) and Cypress Capital Management Ltd. (“CCM”). AGFI, Highstreet, Doherty and Cypress are registered as portfolio managers across various Canadian securities commissions, in addition to other Canadian registrations. AGFA and AGFUS are U.S. registered investment advisers. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF investment management subsidiaries manage a variety of mandates composed of equity, fixed income and balanced assets.

® The “AGF” logo and “Sound Choices” are registered trademarks of AGF Management Limited and used under licence.
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