Why I Don’t Invest In A Taxable (Non-Registered) Account

Rumours of an increased capital gains tax were put to rest last week when the Liberals unveiled their second federal budget with no mention of a change to the inclusion rate. The scuttlebutt around capital gains, however, got me thinking about investing in a taxable or non-registered account.

There are several scenarios where investing in a non-registered account makes sense.

  1. To take advantage of the dividend tax credit
  2. When you’re borrowing funds to invest (ex. Smith Manoeuvre)
  3. When you’ve maxed-out your tax-sheltered accounts (RRSP, TFSA) and still have funds to invest

With that out of the way, I’m here to argue that most people under the age of 40, including me, will never need to invest in a non-registered account in their lifetime.

Heck, even seniors and retirees with healthy balances in their taxable trading accounts have been slowly shifting those assets into their TFSAs as contribution room grows.

Why I Don't Invest In A Taxable Non-Registered Account

The ability to save 18 percent of your income annually inside an RRSP, plus another $5,500 annually inside a TFSA (double that for couples), makes a non-registered investment account a luxury for the wealthy.

Anyone who was at least 18 in 2009 now has $52,000 or more in TFSA contribution room, and most people have more RRSP contribution room than they know what to do with.

Related: Revisiting the Tax Free Savings Account

Even with an extremely high savings rate it still makes sense to prioritize contributions to your RRSP, TFSA, RESP, and perhaps extra mortgage payments before investing in a non-registered account.

It was just this year that we got our savings back on track and started putting away $1,000 per month inside our TFSAs. At this rate it’ll take us until the year 2024 to catch up on all of our unused contribution room and fully fund both of our TFSAs.

Still, our journey to financial freedom will see our household net worth reach $1 million in the year I turn 41 (2020) and from there achieve financial independence by the time I turn 45.

Financial independence means a diversified balance sheet with a paid-for home and more than $600,000 saved inside our RRSPs and TFSAs, plus a workplace pension worth $350,000 and $100,000 saved for our kids’ post-secondary education.

All of this amounts to us living a comfortable, balanced life in which we have enough money saved so that someday soon I can quit employee life and focus on other endeavours.

We can do this, again quite comfortably, by maxing out contributions to our RRSPs and TFSAs every year. Outside of saving up a healthy emergency fund, what more do we need?

Do you invest in a taxable (non-registered) account?

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  1. Potato on March 26, 2017 at 10:24 pm

    I do have non-registered investments. Part of that is a not very common reason: up until 2011, most of my income was in the form of scholarships and did not produce RRSP room, and with the TFSA only being introduced in 2009, non-reg was the only option.

    But the other part behind having non-reg investments is more common: renting. For those renting-and-investing the difference, it’s a double-whammy for non-registered investing: no mortgage to payoff as an alternative when the TFSA fills up, and a higher savings rate from the lower costs.

    Plus, I got a job with a DB pension, and the pension adjustment means I still generate nearly no RRSP contribution room (as an aside, there’s no age factor in the pension adjustment, so it likely takes off too much RRSP room when young, and not enough when old).

    • Echo on March 27, 2017 at 10:39 am

      You’re right John. I completely overlooked renters that have the discipline to save above and beyond their TFSAs and who’ve spent their entire working lives in academia 🙂

  2. Jim F on March 27, 2017 at 4:40 am

    Any Canadian who spent several years working in any other country, or any new Canadians that immigrated here in adulthood will also be forced to invest in a taxable account when they patriate their assets back to Canada. RRSP room only builds up for earned income in Canada, and TFSA room only builds up in the years that one is a residence here.

    As a prior commentator also noted, if you are in a job with a pension, the PA essentially wipes out all of your RRSP contribution room. And if you choose to rent instead of buying, sell your home and downsize, or once your mortgage is paid off (this includes many people in the frugal and FIRE mindset), investing in a taxable account is also your only option. This is particularly true for retirees who need to live off dividend income.

    You are spreading the leftist falsehood that people that invest in a taxable account includes only the “wealthy”, this post is completely irresponsible. It doesn’t take much to max out your registered room, especially in the above scenarios.

    • Deborah S. on March 27, 2017 at 9:02 am

      My Canadian husband and I have a similar situation. We came to BC 4 years ago with the proceeds of the sale of our US home and other liquid assets. We have not bought a home due to the crazy mad prices. As a US citizen I can’t invest in a TFSA (the US doesn’t recognize it as a tax-free investment) and I’ve worked for just a short period. His TFSA is funded with 4 years of maximum contributions but the bulk of our Canadian assets are in our non-registered account. Fortunately we also have substantial retirement accounts in the US. The complexity is mind-boggling!

    • Miss Liz on March 27, 2017 at 10:02 am

      I agree. I’m one of these people. I spent my first 6 working years in California, so I have very little RRSP and TFSA room. I had to open an non-registered account because I’ve maxed out both registered accounts. I can’t afford a home where I work, in Toronto, so I’ve chosen to invest some of what might normally go towards a mortgage. I could attempt to jump into the market with all of my eggs in one basket, but that seems imprudent. It’s therefore a bit frustrating for me when people make claims that only the wealthy use unregistered accounts, and that the capital gains tax should be increased because of that. Certainly not true for me!

      • Echo on March 27, 2017 at 10:43 am

        Hi Miss Liz, there are definitely cases in which contributing to a non-registered account makes sense. Yours is one of those exceptions.

        My argument is that, in general, the TFSA has made non-registered accounts redundant for folks under the age of 40.

    • Echo on March 27, 2017 at 10:40 am

      Hi Jim, fair point but you lost me at “leftist falsehood”. This is a personal finance blog, not the comment section at the Financial Post.

  3. TJ Machado on March 27, 2017 at 4:49 am

    Sound advice. I always mentor young people to open a HELOC, max out RRSP/TFSA/RESP contributions and diligently focus on drawing down the debt with any extra cash lying around. The HELOC also doubles up as a source of cheap emergency funds.

  4. Steve Boyko on March 27, 2017 at 5:50 am

    I don’t invest outside of my RRSP. In our situation I don’t see any reason to do so when we still have room to invest inside it.

  5. CanTex on March 27, 2017 at 6:24 am

    No one’s talking about the other end, when RRIFs hit you (plus RMDs here in the U.S. to go with our RRIFs). We saved well but now we’ve been pushed into a higher tax bracket as we take those withdrawals. We should have put less into RRSPs/IRAs. Yes, we are paying for my investing acumen (read: luck) but it still hurts. When we invested we were in a lower tax bracket than we are now, contrary to all the RRSP folklore.

  6. My Own Advisor on March 27, 2017 at 6:25 am


    I invest in a non-registered account because my TFSA and RRSP are full.

    If you have kids, I believe it makes sense to prioritize your contributions to TFSAs, RESPs and RRSPs first before using a taxable account.


    • Echo on March 27, 2017 at 10:50 am

      Hi Mark, certainly those in the double-income-no-kids camp come at this from another mindset and could have the ability to branch out into non-registered investments.

      In your case I believe it comes down to investing in a taxable account vs. paying down the mortgage (and having some fun) and I think you’ve got a nice healthy balance.

  7. Dave Dineen on March 27, 2017 at 6:26 am

    Another common scenario you overlooked, Robb, is one like mine. I retired in 2010, so the last year I could make RSP contributions (which requires ‘earned income’) that I could actually deduct was 2010. Sure, I’m maxed out on TFSA contributions, but that $52,000 is a pittance in the assets required to fund a current — not a future — retirement.
    You also touch on transfers to TFSAs from non-reg accounts as if that’s a no-brainer. It is, but only if a) you don’t have big capital gains, and b) you don’t have big capital losses, and c) you aren’t living off income from the non-reg account.

    • Echo on March 27, 2017 at 10:51 am

      Hi Dave, for those nearing or in retirement this is a completely different story (as you point out). My argument is more about those of us under the age of 40.

    • RICARDO on April 1, 2017 at 9:45 am

      Hi Dave;
      You are right about not being able to incur a loss when transferring stocks to your TFSA. But you could always sell them first, incur the loss wait a bit and put the money in to the TFSA I believe. Anyone heard different?


  8. Dan on March 27, 2017 at 7:09 am

    I’m under 35 and I’ve been fortunate enough to max out the RRSP and TFSA accounts and now will be opening a taxable account soon. I’ve considered a mortgage pay down but with the mortgage rate being so low (1.90%), every scenario I’ve considered points to a taxable account as having a higher return. Some would disagree and still go with the stability and peace of mind that paying down a mortgage brings. For me it’s all about return and I’d prefer to make a higher return (after taxes). To be honest the real reason why I’ve been able to max out all registered accounts is because we haven’t started a family yet; if we had kids at this stage it likely wouldn’t be possible.

    • Echo on March 27, 2017 at 10:53 am

      Hi Dan, I think given your situation you’ve probably made the right choice going with the non-registered account. Plus, you’re an accountant so I’m sure you’ve run the numbers! 🙂

  9. julie blunden on March 27, 2017 at 7:59 am

    As a dual citizen U.S/Canada I have to pay taxes in the U.S. for my TFSA account. I opted out of opening one but now I wonder how the U.S. taxes that money and wether it work still work better for me than a regular taxable account. it’s very hard to find answers to these questions.

  10. Richard on March 27, 2017 at 9:04 am

    I use an unregistered account instead of contributing more to an RRSP. It does require more tax planning. One big advantage when you’re young is that you can get a margin loan so you can pull out cash temporarily without selling investments. Compare this to the home buyers plan where you lose the potential investment returns until you pay it back.

    If you’re responsible and you use the cash for something that pays more than the interest cost this can be a useful way to manage volatile income or investment opportunities.

    Also useful because I don’t have a home to borrow against and I don’t quite fit the way banks normally look at borrowers. With the margin account the amount I can borrow is based on asssets not income.

  11. Noel on March 27, 2017 at 3:04 pm

    Another fairly common circumstance where a person under 40 will need to save in a non-registered account is in the case of single people. They might be single by choice, or due to divorce or being widowed, and may not intend to partner up (again).

    If one has ambitions for early retirement/financial independence in say one’s mid-50s, the contribution limits of a single RRSP and single TFSA don’t provide nearly enough contribution room to sustain a decent level of spending through a hopefully long retirement… and by decent I mean at least 50% of pre-retirement income. The fixed costs of a single person are fairly close to that of a couple, but the RRSP and TFSA contribution limits may be half as much.

    Another increasingly common circumstance requiring non-registered savings: Those with businesses (incorporated) may choose to draw out much of their compensation in the form of dividends rather than salary, which doesn’t earn them RRSP contribution room (or CPP benefits). Rightly or wrongly (there is a case to be made for both), they will need to save in non-registered accounts personally, or perhaps better yet in accounts within their corporation. With stability and security as an employee becoming less common, more young people are starting their own businesses and will have to figure out the best way to draw income and save for retirement outside of an RRSP and beyond the current annual limits of the TFSA.

  12. nicoleandmaggie on March 27, 2017 at 3:22 pm

    We’re in the US and in situation #3. Our first taxable account is from when we were in grad school without retirement accounts– IRA space was only 6K back then.

  13. Mike on March 28, 2017 at 11:06 am

    If your making a good income and getting good returns in your rrsp you have to be careful how big your portfolio will be and how much you can draw down.
    I stopped contributing to my rrsp because at the rate I was going I was looking at a 2million portfolio at 65,pretty hard to draw that down in twenty years without incurring massive tax bill.
    I now max out tfsa on Jan 1st and put all funds into divedend producing funds for the preferred tax treatment when I retire(20years).
    I rent so it is very easy to build a large portfolio,funny most of my homeowner friends pay more in monthly expenses and upkeep than what I pay in rent(I don’t really understand the fascination with owning when financially it makes more sense to rent,but each to their own)

  14. Don on March 30, 2017 at 10:10 am

    Advisers are quick to beat the RRSP drum few if any point out the tax trap at the end of the term. I too was duped and the 1st mandatory withdrawal from my RRSP funds cost me, with OAP claw-back 72% of the funds withdrawn. TFSA absolutely. Non tax sheltered account for the rest.

  15. Jack on July 29, 2017 at 12:58 pm

    I too am under 40 but have shifted to the non-registered route once TFSA is maxed out on January 1st each year.

    As has been mentioned above the defined benefit pension greatly diminishes the RRSP contribution space and also no guarantee of being in a (much) lower tax bracket come retirement. I’m a renter as well after 10 years of home ‘ownership’ and savings rate definitely higher now.

    Always question myself for taking this approach as none of my friends or family are but it is comforting to see others making the same decision.

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