Non-Registered Account

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Definition: Non-Registered Account

In Canada there are two types of long term savings plan- Registered Retirement Savings Plan and Non-Registered Account. Non registered accounts don’t have any restrictions on the investment made, type of investment or duration of the investment. In non registered accounts, the amount taxable on the money earned on investments in 50% highest marginal rate of tax of the individual.

In registered retirement savings plan (RRSP) the contributions are tax deductible and the income earned from such accounts are not taxed, and the taxes are deferred until the money is withdrawn from the account during retirement. But there are restrictions on the type of investment, maximum contribution and the time period of the investments. So RRSPs delay the payment of taxes until retirement when the marginal tax rate will be lower than the tax rate during the investment period.

If a person has both registered and non-registered accounts, his investments must be structured in such a way that those that generate interest income are held in RRSP and those that generate capital gains are held in non-registered account. Also investors can invest the tax savings from RRSP into non-registered account.

For e.g. a person can hold growth oriented equity mutual funds and stocks in non-registered account and he can hold bonds and other fixed income securities in RRSP.


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