Investment Accounts
Non-registered (Open Accounts)
A non-registered plan (commonly referred to as an "open" or an "investment account") enables investors to invest an unlimited amount with exposure throughout the world. Non Registered accounts are not tax sheltered, meaning the gains and losses must be declared for income tax purposes.
Tax Free Savings Account (TFSA)
A Tax Free Savings Account (TFSA) is a government sponsored registered investment account first introduced in 2009 that allows for tax free gains. The amount of money that can be contributed to a TFSA is limited each year.
| Yearly TFSA Limit | |
| 2021 | $6,000 |
| 2020 | $6,000 |
| 2019 | $6,000 |
| 2016, 2017 & 2018 | $5,500 |
| 2016 | $10,000 |
| 2013 & 2014 | $5,500 |
| 2009, 2010, 2011 & 2012 | $5,000 |
If you’re contributing in 2021 for the first time, you’re eligible to deposit $75,500 provided you’ve been over 18 years since 2009. If you’ve deposited some money over the years, just subtract that number from $75,500 to arrive at your maximum contribution. Any amounts withdrawn can be redeposited to your TFSA the following calendar year.
This informative summary digs deeper into the benefits and consequences of TFSAs.
Registered Retirement Savings Plan (RRSP)
RRSPs have two main tax advantages:
- Contributors can deduct contributions against their income. For example, a contributor earning $60,000 contributes $10,000 to an RRSP in the tax year. Their income for tax purposes is deemed to be $50,000 i.e. Taxable income less the RRSP deposit. Thereby attracting less tax.
- The growth of RRSP investments is “tax-sheltered.” Unlike non-registered investments, the capital grows exempt from any capital gains tax, dividend tax or income tax. This means that investments under RRSPs compound at a pre-tax rate. RRSP withdrawals are fully taxable in the year you withdraw the monies. The over-riding principal is that RRSP contributors delay the payment of taxes on the “sheltered” investments until retirement, (when their marginal tax rate will likely be lower than during their working years).
RRSP contribution limit
- The total amount you can contribute to your RRSP each year is made up of your contribution limit for the current year plus any "carry-forward" contribution room from previous years.
- Your RRSP contribution is 18% of earned income you reported on your tax return in the previous year, up to a maximum of $27,230 for 2020. If you have a company pension plan, your RRSP contribution limit is reduced.
- If you don't make the maximum allowable RRSP contribution in any given year, you can carry forward the unused contribution room indefinitely and add this to the amount you can contribute for future years.
- Both your annual contribution limit and any carry-forward contribution room are shown on your notice of assessment.
RRSP withdrawals are fully taxable in the year you withdraw. The over-riding principal is that RRSP contributors delay the payment of taxes on the “sheltered” investments until retirement, (when their marginal tax rate will likely be lower than during their working years).
Registered Retirement Income Fund (RRIF)
A RRIF is an extension of your Registered Retirement Savings Plan (RRSP), but instead of putting money in, you withdraw from it to use throughout retirement. Your money continues to grow tax-sheltered in a RRIF.
- Convert your RRSP to a RRIF tax-sheltered anytime after age 55 and by the end of the year you turn 71, when you decide to create income.
- You can start taking withdrawals from your RRIF the year after you open your RRIF. There is a minimum annual withdrawal as set out by federal regulations but no maximum withdrawal.
- RRIF funds are taxable in the year you withdraw them.
Restricted Life Income Fund (RLIF) The RLIF is slightly different from a LIF in that it gives you a one-time opportunity to transfer up to 50% of your pension funds into a regular RRSP or RRIF
Locked-In Accounts
Locked-In accounts are accounts which have been created with funds that originated with a registered pension plan (RPP). As part or all of these monies were put aside by an employer for Retirement Income generation, the government does not want these monies to be transferred to an RRSP (as they are not restricted from withdrawal). The government does not want these monies to be used for anything but retirement income generation and as such, "Locks" them from withdrawal until retirement age and limits their withdrawal under a schedule.
Federal → Locked-In Retirement Account (LIRA) → Life Income Fund (LIF)
Provincial → Locked-In RRSP (LRSP) → Locked-In Retirement Income Fund (LRIF)
Registered Education Savings Plan (RESP)
An RESP is a tax-sheltered plan that helps you save for a child’s post-secondary education. Parents, grandparents and friends can contribute money any time to an RESP – up to a lifetime total of $50,000 per child. These contributions are not tax deductible, but any investment income that’s earned within the plan isn’t taxed until it's withdrawn. When used for eligible education expenses the withdrawal is taxed to the student. In addition to tax-deferred growth, the federal government will also automatically contribute a Canada Education Savings Grant (CESG) of 20% of what you put in, up to $500 per year – to a lifetime maximum of $7,200 for each child.
Registered Disability Savings Plan (RDSP)
An RDSP is a registered investment plan intended to encourage long-term savings by and for persons with disabilities. The core plan is modelled after the registered education savings plan (RESP) and its associated grant and bond incentive programs, but there are some significant differences.
As with an RESP, the money contributed to an RDSP is not tax-deductible, but government grants and bonds are deposited directly to the plan tax-free.
Grants can be as much as 300% of personal contributions, and bonds may be obtained without making any personal contributions so long as an income test is satisfied. Earnings and growth on all deposits accrue tax-free.
The beneficiary is the only person entitled to any payments. He or she is the person taxed on those payments, with the taxable amount reduced by the proportion of personal contributions.
As well, there are absolutely no restrictions placed on the use of RDSP payments so long as they are received by the beneficiary or applied for his or her benefit
